<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 28, 1998
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
AT HOME CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 77-0408542
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
425 BROADWAY STREET
REDWOOD CITY, CALIFORNIA 94063
(650) 569-5000
(ADDRESS AND TELEPHONE NUMBER OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
KENNETH A. GOLDMAN
CHIEF FINANCIAL OFFICER
AT HOME CORPORATION
425 BROADWAY STREET
REDWOOD CITY, CALIFORNIA 94063
(650) 569-5000
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
---------------
COPIES TO:
GORDON K. DAVIDSON, ESQ. LARRY W. SONSINI, ESQ.
LAIRD H. SIMONS III, ESQ. DAVID C. DRUMMOND, ESQ.
JEFFERY L. DONOVAN, ESQ. DEBRA B. ROSLER, ESQ.
ANDREW Y. LUH, ESQ. BRYAN D. KURTZ, ESQ.
FENWICK & WEST LLP WILSON SONSINI GOODRICH & ROSATI,
TWO PALO ALTO SQUARE PROFESSIONAL CORPORATION
PALO ALTO, CALIFORNIA 94306 650 PAGE MILL ROAD
(650) 494-0600 PALO ALTO, CALIFORNIA 94304-1050
(650) 493-9300
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration
Statement.
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If the only securities being registered on this Form are to be offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis, other than securities offered only in
connection with dividend or interest reinvestment plans, pursuant to Rule 415
under the Securities Act of 1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED MAXIMUM
PROPOSED MAXIMUM AGGREGATE
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE OFFERING AMOUNT OF
TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) REGISTRATION FEE
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<S> <C> <C> <C> <C>
Series A Common Stock, $.01 par
value per share................ 2,875,000 shs. $45.03125 $129,464,844 $38,193
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</TABLE>
(1) Includes 375,000 shares that the Underwriters have the option to purchase
to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the amount of registration
fee pursuant to Rule 457(c) under the Securities Act of 1933, as amended,
based on the average of the high and low prices of the Common Stock on the
Nasdaq National Market on July 27, 1998.
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH STATE.
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED JULY 28, 1998
PROSPECTUS
2,500,000 SHARES
[LOGO OF @ HOME NETWORK(TM)]
AT HOME CORPORATION
SERIES A COMMON STOCK
-----------
All of the 2,500,000 shares of Series A Common Stock offered hereby are being
sold by At Home Corporation (the "Company" or "@Home"). The Company's Series A
Common Stock is traded on the Nasdaq National Market under the symbol "ATHM."
On July 27, 1998, the last reported sale price of the Series A Common Stock was
$46 1/2 per share. See "Price Range of Common Stock."
The Company has three series of common stock: Series A Common Stock, Series B
Common Stock and Series K Common Stock (collectively, the "Common Stock"). The
shares of Common Stock are substantially identical, except that (i) holders of
Series A and Series K Common Stock are entitled to one vote per share, and
holders of Series B Common Stock are entitled to ten votes per share, on all
matters submitted to a vote of stockholders, (ii) the holders of Series A
Common Stock vote separately as a series to elect two directors who are not
officers or employees of the Company and are not affiliates or associates of
Tele-Communications, Inc. ("TCI"), Comcast Corporation ("Comcast") or Cox
Communications, Inc. ("Cox"), (iii) the holders of Series B Common Stock vote
separately as a series to elect five directors, of which, pursuant to a
Stockholders' Agreement, three are to be designated by TCI, one is to be
designated by Comcast and one is to be designated by Cox, and (iv) the holders
of Series K Common Stock vote separately as a series to elect one director.
Each share of Series B and Series K Common Stock is convertible at the option
of the holder into one Share of Series A Common Stock. Immediately following
the completion of this offering, TCI will own all of the Series B Common Stock
and will have approximately 71% of the combined voting power of the outstanding
Common Stock (assuming no exercise of the over-allotment option granted to the
Underwriters). Therefore, TCI will have the ability to control most significant
matters requiring stockholder approval, including the election of a majority of
the Company's directors, subject to certain supermajority approval rights held
by Comcast and Cox. See "Principal Stockholders."
-----------
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS
WHICH SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK
OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
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- -------------------------------------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT (1) COMPANY(2)
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<S> <C> <C> <C>
Per Share............. $ $ $
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Total(3).............. $ $ $
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</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $500,000.
(3) The Company has granted the Underwriters an option, to purchase up to an
additional 375,000 shares of Common Stock, on the same terms as set forth
above, solely to cover over-allotments, if any. If such option is exercised
in full, the total Price to Public, Underwriting Discount and Proceeds to
Company will be $ , $ and $ , respectively. See "Underwriting."
-----------
The Shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if accepted by them, subject to approval of certain
legal matters by counsel for the Underwriters and certain other conditions. The
Underwriters reserve the right to withdraw, cancel or modify such offer and to
reject orders in whole or in part. It is expected that delivery of the shares
of Common Stock will be made in New York, New York, on or about , 1998.
-----------
The activities of the Managers are being jointly coordinated.
MERRILL LYNCH & CO. MORGAN STANLEY DEAN WITTER
-----------
GOLDMAN, SACHS & CO.
BT ALEX. BROWN
HAMBRECHT & QUIST
-----------
The date of this Prospectus is , 1998.
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Securities and
Exchange Commission (the "Commission") (File No. 000-22697) pursuant to the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), are
incorporated into this Prospectus by reference: (i) the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1997; (ii) the
Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998;
(iii) the Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 1998; and (iv) the description of the Company's Common Stock contained in
the Company's Registration Statement on Form 8-A filed on June 13, 1997 under
Section 12 of the Exchange Act.
Each document filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the offering made hereby shall be deemed to be incorporated by
reference into this Prospectus and to be a part hereof from the date of filing
of such document (all such documents, and the documents enumerated above,
being hereinafter referred to as "Incorporated Documents"). Any statement
contained in an Incorporated Document shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed Incorporated Document
modifies or supersedes such statement. Any statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of this Prospectus.
The Company will provide without charge to each person to whom a copy of
this Prospectus is delivered, including any beneficial owner, upon the written
or oral request of such person, a copy of any or all of the Incorporated
Documents, other than exhibits to such documents unless such exhibits are
specifically incorporated by reference therein. Requests for such copies
should be directed to At Home Corporation, 425 Broadway Street, Redwood City,
California 94063, Attention: David G. Pine, Vice President, General Counsel
and Secretary (telephone: (650) 569-5000). The information relating to the
Company contained in this Prospectus does not purport to be comprehensive and
should be read together with the information contained in the Incorporated
Documents.
----------------
@Home, @Home Network, @Media, @Work and the @ball logo are trademarks of the
Company and are registered in certain jurisdictions. @Work Remote, @Work
Internet, DirectConnect, Replicate, M-Cast and KnowledgeAPI are service marks
of the Company. This Prospectus also includes trademarks of companies other
than the Company.
----------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE SERIES A COMMON
STOCK. SUCH TRANSACTIONS MAY INCLUDE STABILIZING, THE PURCHASE OF SERIES A
COMMON STOCK TO COVER SYNDICATE SHORT POSITIONS AND THE IMPOSITION OF PENALTY
BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
----------------
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE SERIES A
COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 103 OF
REGULATION M. SEE "UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the detailed
information and consolidated financial statements incorporated by reference
herein. Except where otherwise indicated, the information contained in this
Prospectus assumes that the Underwriters' over-allotment option is not
exercised. Investors should carefully consider the information set forth under
the heading "Risk Factors." This Prospectus (including the documents
incorporated by reference herein) contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 (the "Securities Act")
and Section 21E of the Exchange Act. All forward-looking statements included in
this document are based on information available to the Company on the date
hereof, and the Company assumes no obligation to update any such forward-
looking statements. Actual results could differ materially from those projected
in the forward-looking statements as a result of the risk factors set forth
herein and in the documents incorporated by reference herein.
THE COMPANY
At Home Corporation (the "Company" or "@Home") is the leading provider of
broadband Internet services over the cable television infrastructure to
consumers. By virtue of its relationships with 17 cable companies in North
America and Europe, @Home has access to approximately 58.5 million homes, which
includes exclusive access to over 50% of the households in the United States
and Canada. @Home also provides broadband Internet services to businesses over
both the cable television infrastructure and digital telecommunications lines.
The Company's primary offering, the @Home service, allows residential
subscribers to connect their personal computers via cable modems to a high-
speed Internet backbone network developed and managed by the Company. This
service enables subscribers to receive the "@Home Experience," which includes
Internet service over hybrid fiber-coaxial ("HFC") cable at peak transmission
speeds over 100 times faster than typical dial-up connections, "always on"
connection and rich multimedia programming through its broadband Internet
portal. The technology foundation of the @Home Experience is the Company's
scalable, distributed, intelligent network architecture (the "@Home Broadband
Network"), a "parallel Internet" that optimizes traffic routing, improves
security and consistency of service, and facilitates end-to-end network
management, enhancing the Company's ability to address performance bottlenecks
before they affect the user experience.
The Company's @Media group has established the @Home launch screen (the
"@Home Portal") as the leading broadband Internet portal, providing a gateway
to compelling multimedia and electronic commerce offerings on the Internet. To
date, the @Home Experience has generated greater page views per subscriber than
are reported by the leading narrowband Internet portal companies. The @Media
group works with content providers to facilitate the creation of rich
multimedia broadband content delivered through the @Home Portal and to
facilitate online transactions and services for @Home subscribers. Multimedia
content offerings include on-demand video clips from partners such as
Bloomberg, CNN Interactive and the National Basketball Association, on-demand
music and CD previews provided by the Company's Tune-In service and low-latency
multiplayer gaming from SegaSoft. Electronic commerce partners include
Amazon.com, the leading online bookseller, SoftwareNow.com, an online software
distributor, and Travelocity, a leading online travel site. The @Media group
also sells advertising on a cost per thousand impressions ("CPM") basis as well
as on a sponsorship basis. The Company had over 30 advertisers in the quarter
ended June 30, 1998, including Clorox, Disney, General Motors, Home Box Office,
Kraft, MGM, Procter & Gamble, Standard & Poor's, Toyota and Unilever.
For businesses, the Company's @Work services provide a platform for Internet,
intranet and extranet connectivity solutions and networked business
applications over both cable infrastructure and digital telecommunications
lines. In order to accelerate deployment of the @Work connectivity and hosting
solutions into major U.S. metropolitan areas, the Company has established
strategic relationships with Teleport Communications Group, Inc. ("TCG"), the
country's largest competitive local exchange carrier ("CLEC"), Northpoint
Communications, Inc. ("Northpoint"), a provider of digital subscriber line
("DSL") services to businesses, and Exodus Communications, Inc. ("Exodus"), a
provider of Internet hosting and network management services. By combining the
Company's broadband distributed network architecture with cable, telephone and
technology relationships, the @Work services provide a compelling platform for
nationwide delivery of network-based business applications. The Company has
developed this platform at a low incremental cost by leveraging its existing
@Home Broadband Network investment. The Company currently provides @Work
services to more than 1,000 businesses.
3
<PAGE>
The Company has entered into distribution arrangements for the @Home service
with 15 cable companies in North America whose cable systems pass approximately
57.1 million homes, including TCI, Cablevision Systems Corp. ("Cablevision"),
Comcast, Cox (together with TCI, Cablevision and Comcast, the "Principal U.S.
Cable Partners"), Rogers Cablesystems Limited ("Rogers"), Shaw Cablesystems
Ltd. ("Shaw"), Bresnan Communications Company ("Bresnan"), Century
Communications Corp. ("Century"), Cogeco Cable, Inc. ("Cogeco"), Garden State
Cable ("Garden State"), Insight Communications ("Insight"), Jones Intercable,
Inc. ("Jones"), Lenfest Communications Inc. ("Lenfest"), Marcus Cable Operating
Company, L.P. ("Marcus") and InterMedia Partners IV L.P. ("InterMedia")
(collectively, the "Cable Partners"). As of June 30, 1998, approximately 7.9
million of these homes were passed by upgraded two-way HFC cable, and the
Company believes that the Cable Partners will complete the upgrade of systems
passing a majority of their homes within five years. In order to shorten time
to market for cable operators, the Company provides a turnkey solution, which
includes not only a technology platform and a national brand, but also ongoing
marketing, customer service, billing and product development support. The
Company has launched the @Home service through its Cable Partners in portions
of 31 cities and communities in the United States and Canada and has
approximately 147,000 subscribers, including recently acquired Internet
subscribers served by Jones and Cogeco that are being converted to the @Home
service.
As part of its strategy to expand into international markets, the Company has
entered into agreements for the distribution of the @Home service by EDON
Beheer B.V. ("Edon") and Palet Kabelcom in the Netherlands and has entered into
an agreement in principle with ComTel Limited in the United Kingdom. The
Company has also initiated a distribution program with leading consumer
electronics retailers, including CompUSA and Computer City, to facilitate the
sale of the @Home service and cable modems compliant with Data Over Cable
Service Interface Specifications ("DOCSIS"). In addition, the Company is
working with Cable Television Laboratories, Inc. ("CableLabs") to develop
advanced digital set-top boxes to provide broadband Internet access via
television sets and to accelerate transformation of the Internet into a mass
medium. TCI has entered into a non-binding memorandum of understanding with
General Instrument Corporation ("General Instrument") for the purchase of up to
11 million advanced digital set-top boxes and has selected @Home to develop
software and provide integration services for this platform.
RECENT EVENTS
On June 24, 1998, TCI and AT&T Corp. ("AT&T") announced that they had signed
a definitive merger agreement pursuant to which AT&T will acquire TCI. AT&T has
announced that it currently intends to combine following the merger TCI's
cable, telecommunications and high-speed Internet businesses, including TCI's
controlling equity interest in the Company, with AT&T's consumer businesses to
form AT&T Consumer Services, which will provide a broad set of consumer
communications services, including local, long distance, wireless and
international communications, cable television and dial-up and high-speed
Internet access services under the AT&T brand name. In announcing the merger,
AT&T stated its intention to accelerate the upgrade of TCI's cable
infrastructure significantly, enabling AT&T to begin providing digital
telephony and data services to consumers by the end of 1999. AT&T and TCI
anticipate that the merger, which is subject to regulatory and stockholder
approvals, will be completed in the first half of 1999. In addition, in July
1998, AT&T acquired TCG.
The Company believes that AT&T's acquisition of TCG and of TCI's cable,
telecommunications and high-speed Internet businesses may benefit the Company
by increasing the rate at which TCI's cable facilities will be upgraded to the
two-way HFC cable necessary to carry the Company's services, by allowing the
Company to utilize the strength of AT&T's brand in marketing the @Home service
to consumers and by increasing the potential for cooperation between the
Company and TCG. However, these benefits may not be realized. See "Risk
Factors--AT&T Acquisition of TCI and TCG."
---------------
The Company was incorporated in Delaware in March 1995. The Company's
executive offices are located at 425 Broadway Street, Redwood City, California
94063. Its telephone number at that location is (650) 569-5000.
4
<PAGE>
THE OFFERING
<TABLE>
<C> <S>
Series A Common Stock offered by the Company........ 2,500,000 shares
Common Stock to be outstanding after this offering:
Series A Common Stock............................ 97,559,514 shares(1)
Series B Common Stock............................ 15,400,000 shares
Series K Common Stock............................ 8,438,830 shares
Total.......................................... 121,398,344 shares(1)
Use of proceeds..................................... For general corporate
purposes, including
working capital and
capital expenditures,
including those
associated with domestic
and international
expansion and additional
backbone capacity. See
"Use of Proceeds."
Nasdaq National Market symbol....................... ATHM
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PERIOD FROM
MARCH 28, 1995 YEAR ENDED SIX MONTHS ENDED
(INCEPTION) TO DECEMBER 31, JUNE 30,
DECEMBER 31, ------------------- -------------------
1995 1996 1997 1997 1998
-------------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Revenues................ $ -- $ 676 $ 7,437 $ 1,830 $ 14,993
Total costs and expenses
before cost of
distribution agreement. 2,886 25,703 56,941 24,977 39,832
Cost of distribution
agreement.............. -- -- 172,591 -- 83,320
Net loss................ (2,756) (24,513) (219,062) (22,804) (106,146)
Basic and diluted net
loss per share(2)...... $ (0.03) $ (0.26) $ (2.12) $ (0.23) $ (0.95)
======= ======== ========= ======== =========
Shares used in per share
calculations(2)........ 95,252 96,120 103,543 98,234 112,098
======= ======== ========= ======== =========
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1998
--------------------
AS
ACTUAL ADJUSTED(3)
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<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term cash investments.... $ 91,191 $201,129
Working capital........................................... 67,737 177,675
Total assets.............................................. 149,136 259,074
Capital lease obligations, less current portion, and other
long-term liabilities.................................... 14,941 14,941
Stockholders' equity...................................... 101,427 211,365
</TABLE>
- --------
(1) Based on the number of shares outstanding as of June 30, 1998. Excludes (i)
5,252,484 shares of Series A Common Stock then issuable upon the exercise
of outstanding options with a weighted average exercise price of $20.81 per
share, (ii) 6,439,349 shares of Series A Common Stock reserved for issuance
under the Company's 1997 Equity Incentive Plan, (iii) 882,973 shares of
Series A Common Stock reserved for issuance under the Company's 1997
Employee Stock Purchase Plan and (iv) 23,489,036 shares of Series A Common
Stock issuable upon the exercise of outstanding warrants with a weighted
average exercise price of $5.85 per share.
(2) Basic and diluted net loss per share for periods prior to 1998 give pro
forma effect to the conversion, in connection with the Company's initial
public offering in July 1997, of all outstanding shares of Convertible
Preferred Stock into shares of Common Stock.
(3) Reflects the sale of the 2,500,000 Shares of Series A Common Stock offered
hereby at an assumed public offering price of $46 1/2 per share, after
deducting the estimated underwriting discount and offering expenses. See
"Use of Proceeds."
5
<PAGE>
RISK FACTORS
In evaluating the Company's business, prospective investors should carefully
consider the following risk factors in addition to the other information set
forth herein or incorporated herein by reference.
UNPROVEN BUSINESS; NO ASSURANCE OF PROFITABILITY
The Company was incorporated in March 1995, commenced operations in August
1995, and has incurred net losses from operations in each fiscal period since
its inception. As of June 30, 1998, the Company had an accumulated deficit of
$93.6 million (before the $172.6 million and $83.3 million charges recorded in
the fourth quarter of 1997 and first quarter of 1998, respectively, in
connection with certain warrants granted to Cablevision and Shaw in connection
with their distribution agreements), and an accumulated deficit of $349.5
million, including the charges relating to these agreements. In addition, the
Company currently intends to increase its capital expenditures and operating
expenses in order to expand its network to support additional expected
subscribers in existing and future markets, to support the continued roll-out
of its @Work services and to market and provide the Company's services to a
growing number of potential subscribers. As a result, the Company expects to
incur additional substantial operating and net losses for the foreseeable
future. The profit potential of the Company's business model is unproven. The
@Home service was only available in portions of 31 geographic markets as of
June 30, 1998 and may not achieve broad consumer or commercial acceptance, and
the Company's @Work services have only recently been launched. Although
approximately 1,200 organizations have agreed to utilize @Work services as of
June 30, 1998, @Work services may not achieve broad commercial acceptance and
the current rate of deployment for @Work services may not be sustained. The
Company has difficulty predicting whether the pricing models for its Internet
services will prove to be viable, whether demand for its Internet services
will materialize at the prices it expects its Cable Partners to charge (for
the @Home service) or the prices it or the Cable Partners charge (for @Work
services), or whether current or future pricing levels will be sustainable. If
such pricing levels are not achieved or sustained or if the Company's services
do not achieve or sustain broad market acceptance, the Company's business,
operating results and financial condition will be materially adversely
affected. There can be no assurance that the Company will ever achieve
favorable operating results or profitability.
SUBSCRIBER GROWTH RISKS FOR THE @HOME SERVICE
As of June 30, 1998, the Company had approximately 147,000 subscribers to
its @Home service, including recently acquired Internet subscribers served by
Jones and Cogeco that are being converted to the @Home service. The Company's
ability to increase the number of subscribers to the @Home service to achieve
its business plans and generate future revenues will be dependent on a number
of factors, many of which are beyond the Company's control. These factors
include, among others: (i) the rate at which the Company's current and future
Cable Partners upgrade their cable infrastructures; (ii) the ability of the
Company and its Cable Partners to coordinate timely and effective marketing
campaigns with the availability of such upgrades; (iii) the success of the
Cable Partners in marketing the @Home service to subscribers in their local
cable areas; (iv) the prices that the Cable Partners set for the @Home service
and its installation; (v) the speed at which the Cable Partners can complete
the installations required to initiate service for new subscribers; (vi) the
quality of customer and technical support provided by the Company and its
Cable Partners; and (vii) the quality of content on the @Home service. The
Company believes subscriber growth has been constrained, and will continue to
be constrained, by the cost and the amount of time required to install the
@Home service for each residential consumer. In addition, most of the
Company's Cable Partners are not obligated to upgrade their cable
infrastructures or market the @Home service. Moreover, the @Home service is
currently priced at a premium to many other online services, and large numbers
of subscribers may not be willing to pay a premium for the @Home service.
Because of the foregoing factors, among others, the Company's actual revenues
or the rate at which it will add new subscribers may differ from its
forecasts. The Company may not be able to increase its subscriber base in
accordance with its internal forecasts or the forecasts of industry analysts
or to a level that meets the expectations of investors. The rate at which
subscribers have increased during the first two quarters of 1998 should not be
taken as indicative of the rate at which subscribers may be expected to
increase in the future. In particular, while the Company has recently forecast
that its number of subscribers could grow to over 300,000 by the end of 1998
from approximately 147,000 subscribers at June 30, 1998, the Company may not
achieve this level of subscriber growth, particularly given the risks set
forth herein.
6
<PAGE>
POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
The Company's quarterly operating results may fluctuate significantly in the
future as a result of a variety of factors, many of which are outside the
Company's control. Factors that may affect the Company's quarterly operating
results attributable to its @Home service include: (i) the timing of the
Company's Cable Partners' upgrades of their cable infrastructures and roll-
outs of the @Home service; (ii) the rate at which customers subscribe to the
Company's Internet services and the prices subscribers pay for such services;
(iii) subscriber churn rates; (iv) changes in the revenue splits between the
Company and its Cable Partners; (v) the demand for Internet advertising and
electronic commerce; (vi) the effectiveness of the Cable Partners' marketing
and other operations; and (vii) potential competition with Cable Partners for
advertising revenue. Quarterly operating results attributable to the Company's
@Work services are dependent on: (i) the demand for, and level of acceptance
of, the Company's corporate Internet, intranet and extranet connectivity and
telecommuting solutions; (ii) the introduction of, demand for, and level of
acceptance of, the Company's value-added business applications; (iii) in part,
the timing of the Cable Partners' upgrades of their cable infrastructures;
(iv) the effectiveness of the Cable Partners' marketing and other operations;
(v) competitive pressures, including pricing pressure and the availability of
competing technologies, in the market for business Internet services; and (vi)
the creditworthiness of the Company's @Work customers. In addition, the
Company's quarterly operating results have been and may continue to be
adversely affected by significant charges associated with warrants issued to
current and potential Cable Partners in connection with distribution
agreements. The Company's quarterly sales and operating results are difficult
to forecast even in the short term. A significant portion of the Company's
expenses are fixed in advance based in large part on future revenue forecasts.
If revenue is below expectations in any given quarter, the adverse impact of
the shortfall on the Company's operating results may be magnified by the
Company's inability to adjust spending to compensate for the shortfall.
Moreover, the Company's Cable Partners have complete discretion regarding the
pricing of the @Home service in their territories, which could further impact
the Company's ability to generate sufficient revenue. A shortfall in actual as
compared to estimated revenue could have a material adverse effect on the
Company's business, operating results and financial condition.
DEPENDENCE ON CABLE PARTNERS TO UPGRADE TO TWO-WAY CABLE INFRASTRUCTURE
NECESSARY TO SUPPORT THE @HOME SERVICE; UNCERTAIN AVAILABILITY AND TIMING OF
UPGRADES
Transmission of the @Home service and certain @Work services over cable is
dependent on the availability of high-speed two-way HFC cable infrastructure.
However, only a small portion of existing cable plant in the United States and
in certain international markets has been upgraded to HFC cable, and even less
is capable of high-speed two-way transmission. The Company's Cable Partners
have announced and begun to implement major infrastructure investments in
order to deploy two-way HFC cable. However, cable system operators have
limited experience with these upgrades, and these investments have placed a
significant strain on the financial, managerial, operating and other resources
of the Cable Partners, most of which are already highly leveraged. Therefore,
these infrastructure investments have been, and the Company expects will
continue to be, subject to change, delay or cancellation. Although the
Company's commercial success depends on the successful and timely completion
of these infrastructure upgrades, most of the Cable Partners are under no
obligation to the Company to upgrade systems or to roll out, market or promote
the Company's services. In addition, most of the Cable Partners are not
contractually required to achieve any specific roll-out schedule. The failure
of the Cable Partners to complete these upgrades in a timely and satisfactory
manner, or at all, would prevent the Company from delivering high-performance
Internet services and would have a material adverse effect on the Company's
business, operating results and financial condition.
NO OBLIGATION OF PRINCIPAL U.S. CABLE PARTNERS TO CARRY THE COMPANY'S
SERVICES; LIMITATIONS ON THEIR EXCLUSIVITY
Although the Company's Principal U.S. Cable Partners are subject to certain
exclusivity obligations that prohibit them from obtaining high-speed (greater
than 128 Kbps) residential consumer Internet services from any source other
than the Company (the "Exclusivity Obligations"), such Principal U.S. Cable
Partners are under no affirmative obligation to carry any of the Company's
services. Such Exclusivity Obligations of the Principal
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U.S. Cable Partners expire on June 4, 2002, and may be terminated sooner under
certain circumstances. The Principal U.S. Cable Partners' Exclusivity
Obligations are limited to high-speed residential Internet services and do not
extend to various "Excluded Services" which the Company's Principal U.S. Cable
Partners may offer without the Company and which the Company may not offer
over a Principal U.S. Cable Partner's cable plant (even if part of a service
is integrated within the @Home service) without the consent of such Cable
Partner. "Excluded Services" include: (i) the provision of telephony services;
(ii) the provision of services that are primarily work-related (such as @Work
services); (iii) the provision of Internet services that do not use the
Principal U.S. Cable Partners' cable television infrastructures; (iv) the
provision of any local Internet service that does not require use of an
Internet backbone outside a single metropolitan area; (v) the provision of
services that are utilized primarily to connect students to schools, colleges
or universities; (vi) the provision of Internet telephony, Internet video
telephony or Internet video conferencing; (vii) the provision of certain
limited Internet services primarily intended for display on a television such
as some types of Internet-based digital set-top services; (viii) the provision
of certain Internet services that are primarily downstream services where the
user cannot send upstream commands in real-time; (ix) the provision of
streaming video services that include video segments longer than ten minutes
in duration; and (x) limited testing, trials and similar activities with
respect to businesses subject to the Exclusivity Obligations of less than six
months. By engaging in the Excluded Services, the Principal U.S. Cable
Partners can compete, directly or indirectly, with the activities of the
Company, including the Company's @Work services.
CONTROL BY TCI
TCI controlled approximately 72% of the voting power of the Company as of
June 30, 1998. Therefore, TCI has the ability to control most significant
matters requiring stockholder approval, including the election of a majority
of the Company's directors, subject to certain supermajority approval rights
held by Comcast and Cox. In addition, the Company's Board of Directors is
controlled by TCI, subject to certain veto rights held by Comcast and Cox.
Therefore, TCI, Comcast and Cox have the power, subject to directors'
fiduciary duties, to change the terms of distribution for the Company's
Internet services to be more favorable for the Company's Principal U.S. Cable
Partners and less favorable for the Company. See the Company's quarterly
report on Form 10-Q filed on July 28, 1998 and the exhibits to the
Registration Statement of which this Prospectus forms a part for additional
information on the rights of TCI and other Principal U.S. Cable Partners.
AT&T ACQUISITION OF TCI AND TCG
On June 24, 1998, TCI and AT&T announced that they had signed a definitive
merger agreement pursuant to which AT&T will acquire TCI. Following the
acquisition of TCI by AT&T and therefore of TCI's equity interest in the
Company, AT&T will have the power to exercise control over the Company as
described above. AT&T and TCI anticipate that the merger, which is subject to
regulatory and stockholder approvals, will be completed in the first half of
1999. In addition, in July 1998, AT&T acquired TCG. While the Company believes
that AT&T's acquisition of TCI and TCG may benefit the Company by increasing
the rate at which TCI's cable facilities will be upgraded to the two-way HFC
cable necessary to carry the Company's services, by allowing the Company to
utilize AT&T's brand in marketing the @Home service to consumers and by
increasing the potential for cooperation between the Company and TCG, these
benefits may not be realized and the TCI acquisition may not be completed.
Moreover, the Master Distribution Agreement Term Sheet under which the
Company's Principal U.S. Cable Partners have agreed to the Exclusivity
Obligations provides that upon a change of control of TCI, either Cox or
Comcast may terminate the Exclusivity Obligations as to all Principal U.S.
Cable Partners. For this purpose, a "change of control" of TCI is defined to
occur at such time as (i) any person (or group of persons acting in concert),
other than Bob Magness or John Malone or their descendants or any stockholder
that was a member of the controlling group of stockholders of TCI as of June
4, 1996, owns stock representing more than 50% of the voting power of TCI and
(ii) as a result of acquiring such ownership, at any time prior to the first
anniversary of acquiring such ownership (the "Acquisition Date"), the
directors who were members of the Board of Directors of TCI as of the
Acquisition Date, plus any additional directors not designated by the
acquiring person who are approved by a majority of the directors who were
directors on the Acquisition
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Date, no longer constitute a majority of the entire board of directors of TCI.
If AT&T completes its proposed acquisition, it will acquire a majority of the
voting power of TCI and will therefore have the power to preserve the
Exclusivity Obligations. However, if AT&T chooses not to retain a sufficient
number of the directors of TCI who were in office prior to the completion of
the merger for at least one year after the Acquisition Date, either Cox or
Comcast would have the right to terminate the exclusivity provisions
applicable to the Principal U.S. Cable Partners, which could have a material
adverse effect on the Company's business, operating results and financial
condition.
LIMITATIONS ON THE COMPANY'S ABILITY TO PROVIDE CERTAIN EXCLUDED SERVICES
The Company has agreed with its Principal U.S. Cable Partners (i) not to
directly or indirectly offer, provide, distribute, advertise, promote or
market (or carry or otherwise distribute advertising or promotions with
respect to) any streaming video transmissions that include video segments
longer than ten minutes in duration or any other Excluded Service to
residences in the Exclusive Territory (as defined below) of a Principal U.S.
Cable Partner without its prior written consent even if such Excluded Service
has been integrated with the @Home service in other areas and (ii) not to
offer or provide Internet services other than through the cable infrastructure
at data transmission speeds greater than 128 Kbps to residences in any
geographic area served by the cable systems of those Principal U.S. Cable
Partners that remain in compliance with their exclusivity provisions (the
"Exclusive Territory") until the later of June 4, 2002 and such time as the
Principal U.S. Cable Partner is no longer in compliance with the Exclusivity
Obligations. No assurance can be given that the Company will have access to
the cable infrastructures of its Principal U.S. Cable Partners for Excluded
Services, and the Company must negotiate a separate agreement with each of the
Principal U.S. Cable Partners for each portion of such services that the
Company seeks to provide over their cable infrastructures. Any such failure to
obtain access, or competition from the Company's Principal U.S. Cable Partners
in providing Excluded Services, could have a material adverse effect on the
Company's business, operating results and financial condition.
POTENTIAL DISPOSITION OF CABLE SYSTEMS BY PRINCIPAL U.S. CABLE PARTNERS
The Company's agreements with its Principal U.S. Cable Partners do not
require that they maintain a specified number of cable systems, subscribers or
homes passed in order to maintain their control over and equity ownership of
the Company. Therefore, these Principal U.S. Cable Partners may dispose of a
significant amount of their cable systems without requiring that such cable
systems remain subject to any exclusivity provisions. However, to the extent
that any Principal U.S. Cable Partner disposes of more than 20% of the number
of homes passed in its service areas as of June 4, 1996 (subject to certain
exceptions) without causing such transferred homes to remain exclusive to
@Home, then such Principal U.S. Cable Partner may be required to sell a
proportionate amount of its equity interest in the Company to the other
Principal U.S. Cable Partners at the fair market value thereof. TCI has
completed the transfer or sale of certain cable systems and has announced the
proposed sale or transfer of additional cable systems and is considering
various plans and proposals that may result in the disposition of other of its
cable systems. Although TCI has informed the Company that it is attempting to
cause certain of such transferred systems to remain subject to the Exclusivity
Obligations, there can be no assurance that these efforts will be successful.
Such dispositions may have an adverse effect upon the business, operating
results and financial condition of the Company if the transferred homes do not
remain exclusive to the Company.
UNPROVEN NETWORK SCALABILITY, SPEED AND SECURITY
Due to the limited deployment of the Company's services, the ability of the
@Home Broadband Network to connect and manage a substantial number of online
subscribers at high transmission speeds is as yet unknown, and the Company
faces risks related to the @Home Broadband Network's ability to be scaled up
to its expected subscriber levels while maintaining superior performance. The
@Home Broadband Network may be unable to achieve or maintain a high speed of
data transmission, especially as the number of the Company's subscribers
grows. The Company's failure to achieve or maintain high-speed data
transmission would significantly reduce consumer demand for its services and
have a material adverse effect on its business, operating results and
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financial condition. In addition, while the Company has taken steps to prevent
users from sharing files via the @Home service and to protect against "email
spamming," public concerns about security, privacy and reliability of the
cable network, or actual problems with the security, privacy or reliability of
the Company's network, may inhibit the acceptance of the Company's Internet
services.
MANAGEMENT OF EXPANDED OPERATIONS; DEPENDENCE ON KEY PERSONNEL
The Company may not be able to successfully manage any future periods of
rapid growth or expansion, which could be expected to place a significant
strain on the Company's managerial, operating, financial and other resources.
From time to time, the Company and its Cable Partners have had difficulty
managing network operations and expansion of backbone capacity and providing
adequate customer service or efficient provisioning of new subscribers. A
prolonged failure to perform these functions successfully would have a
material adverse effect on subscriber growth and retention and would
materially adversely affect the Company's business, operating results and
financial condition. The Company is highly dependent upon the efforts of its
senior management team, and the Company's future performance will depend, in
part, upon the ability of senior management to manage growth effectively,
which will require the Company: (i) to implement additional management
information systems capabilities; (ii) to develop further its operating,
administrative, financial and accounting systems and controls; (iii) to
maintain close coordination among engineering, accounting, finance, marketing,
sales and operations; and (iv) to hire and train additional technical and
marketing personnel. There is intense competition for senior management,
technical and marketing personnel in the areas of the Company's activities.
The loss of the services of any of the Company's senior management team or the
failure to attract and retain additional key employees could have a material
adverse effect on the Company's business, operating results and financial
condition. The Company maintains no key-person life insurance.
DEPENDENCE ON TWO-WAY CABLE MODEMS; NEW INDUSTRY STANDARD
Each of the Company's subscribers currently must obtain a cable modem from a
Cable Partner to access the @Home service. The North American cable industry
has recently adopted a set of interface specifications known as DOCSIS for
hardware and software to support the delivery of data services over the cable
infrastructure utilizing interoperable cable modems. The Company believes that
these specifications, together with its development agreement with Intel
Corporation ("Intel") relating to "plug and play" DOCSIS modems, will
facilitate the growth of the cable modem industry and the availability of
lower cost, interoperable cable modems through retail channels. However,
certain of the Company's Cable Partners have chosen to slow the deployment of
the @Home service until the commercial availability of DOCSIS-compliant cable
modems. The Company's subscriber growth could be constrained and the Company's
business, operating results and financial condition could be materially
adversely affected to the extent the Cable Partners choose to slow the
deployment of the @Home service further, as a result of the timing of
commercial availability of DOCSIS-compliant cable modems or otherwise. Cable
modems that are DOCSIS-compliant are not currently expected to be generally
commercially available before the fourth quarter of 1998 or to be available in
significant quantities until 1999. Although multiple vendors are expected to
supply DOCSIS-compliant cable modems and their constituent components, any
Cable Partner's reliance on a single provider of such modems or components
could cause that Cable Partner to be unable to generate expected subscriber
growth for the @Home service in the event such supplier does not provide the
Cable Partner with a sufficient quantity of DOCSIS-complaint modems to meet
the Cable Partner's requirements.
COMPETITION
The markets for consumer and business Internet services and online content
are extremely competitive, and the Company expects that competition will
intensify in the future. The Company's most direct competitors in these
markets are unaffiliated cable companies, national long-distance carriers,
local exchange carriers, Internet service providers ("ISPs"), online service
providers ("OSPs") and Internet content aggregators.
The Company's competitors in the cable-based services market are those
companies that have developed their own cable-based services and market those
services to unaffiliated cable system operators that are planning
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to deploy data services. In particular, Time Warner Inc. ("Time Warner") and
MediaOne Group ("MediaOne") have deployed high-speed Internet access services
over their existing local HFC cable networks through their cable-based
Internet service, Road Runner, which features a variety of proprietary content
from Time Warner Publications. Time Warner's substantial libraries of
multimedia content could provide Road Runner with a significant competitive
advantage. In June 1998, Microsoft Corporation ("Microsoft") and Compaq
Computer Corporation ("Compaq") each invested $212.5 million in Road Runner
and announced that Microsoft will provide software for the Road Runner service
and that Compaq will produce cable-ready personal computers to be used with
the service. Time Warner and MediaOne plan to market the Road Runner service
through their own cable systems as well as to other cable system operators
nationwide. Although the Company does not presently compete with the Road
Runner services for subscribers because their services are offered over
different cable systems than those that carry the @Home service, the Company
does compete with the Road Runner service in seeking to establish distribution
arrangements with cable system operators. Furthermore, at such time as the
Company's existing Cable Partners cease to be subject to the Exclusivity
Obligations, the Company may compete with Road Runner and potentially other
Internet service providers for distribution over the cable systems of the
Company's Cable Partners. In addition, other cable system operators, including
Adelphia Communications Corporation and Bell South Corporation, have launched
their own cable-based Internet services that could compete with the Company's
services.
Long distance inter-exchange carriers, such as AT&T, MCI Communications
Corporation ("MCI"), Sprint Corporation ("Sprint") and WorldCom, Inc.
("WorldCom"), have deployed large-scale Internet access networks and sell
connectivity to business and residential customers. The regional Bell
operating companies ("RBOCs") and other local exchange carriers have also
entered this field and are providing price competitive services. Many such
carriers are offering diversified packages of telecommunications services,
including Internet access, to residential customers and could bundle such
services together, which could put the Company at a competitive disadvantage.
Many of these competitors are offering (or may soon offer) technologies that
will compete with some or all of the Company's high-speed data service
offerings. Such technologies include Integrated Services Digital Network
("ISDN") and Asymmetric Digital Subscriber Line ("ADSL"). In Janaury 1998,
Compaq, Intel and Microsoft, other technology companies and numerous
telecommunications providers announced an initiative to develop a simplified
version of ADSL, referred to as "ADSL Lite," which reduces the complexity and
expense of installing Internet services based on ADSL. While commercial tests
of this simplified version of ADSL are not expected until the end of 1998,
this initiative may accelerate the deployment of ADSL services. Widespread
commercial acceptance of ADSL technologies could significantly reduce the
potential subscriber base for the Company's Internet services, which could
have a material adverse effect on the Company's business, operating results
and financial condition.
The Company could also face substantial competition from its strategic
partners. In February 1997, TCG acquired CERFnet Services, Inc. ("CERFnet"),
an Internet service provider for business customers that competes with the
Company's @Work service. The Company's @Work business depends to a significant
extent on its agreement with TCG for local access telecommunications services.
If TCG ceases to cooperate with the Company, there could be an adverse effect
on the Company's @Work business. In July 1998, AT&T acquired TCG and in June
1998, AT&T announced an agreement to acquire TCI, including TCI's controlling
interest in the Company. AT&T also operates a consumer Internet service known
as AT&T WorldNet. Now that it owns TCG, and if it completes its acquisition of
TCI, AT&T could take actions that benefit CERFnet, WorldNet or other services
of AT&T to the detriment of the Company. Moreover, as discussed above, AT&T's
acquisition of TCI could result in termination of the Exclusivity Obligations
of the Company's Principal U.S. Cable Partners. Any of these actions could
have a material adverse effect on the Company's business, operating results
and financial condition.
The Company also competes to some extent with Internet service providers
which provide basic Internet access to residential consumers and businesses,
generally using existing telephone network infrastructures. While not offering
the advantages of broadband access, these services are widely available and
inexpensive. Barriers to entry are low, resulting in a highly competitive and
fragmented market. In addition, the Company competes with
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online service providers such as America Online, Inc. ("America Online") that
provide, over the Internet and on proprietary online services, content and
applications ranging from news and sports to consumer videoconferencing. These
services are designed for broad consumer access over telecommunications-based
transmission media, which enables the provision of data services to the large
group of consumers who have personal computers with modems. In addition, OSPs
provide basic Internet connectivity, ease of use and consistency of
environment. In addition to developing their own content or supporting
proprietary third-party content developers, online services often establish
relationships with traditional broadcast and print media outlets to bundle
their content into the service. Finally, the Company competes with content
aggregators and Internet portals that seek to capture audience flow by
providing ease-of-use and offering content that appeals to a broad audience.
Leading companies in this area include America Online, Yahoo! Inc. and Excite,
Inc. In this market, competition occurs in acquiring both content providers
and subscribers. The principal bases of competition in attracting content
providers include quality of demographics, audience size, cost-effectiveness
of the medium and ability to create differentiated experiences using
aggregator tools. The principal bases of competition in attracting subscribers
include richness and variety of content and ease of access to the desired
content. Many OSPs, such as America Online, have the advantage of large
customer bases, industry experience, many content partnerships and significant
resources.
Many of the Company's competitors and potential competitors have
substantially greater financial, technical and marketing resources, larger
subscriber bases, longer operating histories, greater name recognition and
more established relationships with advertisers and content and application
providers than the Company. Such competitors may be able to undertake more
extensive marketing campaigns, adopt more aggressive pricing policies and
devote substantially more resources to developing Internet services or online
content than the Company. The Company may not be able to compete successfully
against current or future competitors, and competitive pressures faced by the
Company could materially adversely affect the Company's business, operating
results or financial condition. Further, as a strategic response to changes in
the competitive environment, the Company and its Cable Partners may make
certain pricing, service or marketing decisions or enter into acquisitions or
new ventures that could have a material adverse effect on the Company's
business, operating results or financial condition.
RISKS ASSOCIATED WITH JOINT DEVELOPMENT EFFORT
The Company was recently selected by TCI to develop software and provide
integration services for TCI's next generation advanced digital set-top
devices pursuant to a Memorandum of Understanding between the Company and
TCI's National Digital Television Center ("NDTC"). Completion of the
transactions contemplated by the Memorandum of Understanding is subject to
negotiation of a definitive agreement and other conditions, and there can be
no assurance that such transactions will be consummated. Although the Company
believes this relationship could enable the Company to expand its product line
and market the @Home service to a broader audience of consumers who do not
regularly use a personal computer, the Memorandum of Understanding does not
require that TCI deploy the @Home service on such set-top devices, and the
Company cannot predict when such set-top devices will become commercially
available. In addition to the technological, financial and infrastructure
challenges TCI faces in deploying the new set-top devices, the success of this
development effort is subject to: (i) the technological and operational
challenges of providing and supporting email and other Internet services to
set-top device users; (ii) competition from alternative Internet service
providers and deployment technologies; and (iii) the degree to which consumers
desire Internet services, including email, on their televisions.
RISK OF SYSTEM FAILURE
The Company's operations are dependent upon its ability to support its
highly complex network infrastructure and avoid damage from fires,
earthquakes, floods, power losses, telecommunications failures and similar
events. The occurrence of a natural disaster or other unanticipated problem at
the Company's Network Operations Center ("NOC") or at a number of the
Company's regional data centers ("RDCs") could cause interruptions in the
services provided by the Company. Additionally, failure of the Company's Cable
Partners or companies from which the Company obtains data transport services
to provide the data communications capacity
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required by the Company, as a result of natural disaster, operational
disruption or any other reason, could cause interruptions in the services
provided by the Company. Any damage or failure that causes interruptions in
the Company's operations could have a material adverse effect on the Company's
business, operating results and financial condition.
RISKS OF TECHNOLOGICAL CHANGE
The markets for consumer and business Internet access services and online
content are characterized by rapid technological developments, frequent new
product introductions and evolving industry standards. The emerging nature of
these products and services and their rapid evolution will require that the
Company continually improve the performance, features and reliability of its
network, Internet content and consumer and business services, particularly in
response to competitive offerings. The Company may not be successful in
responding quickly, cost effectively and sufficiently to these developments.
There may be a time-limited market opportunity for the Company's cable-based
consumer and business Internet services, and the Company may not be successful
in achieving widespread acceptance of its services before competitors offer
products and services with speed and performance similar to the Company's
current offerings. In addition, the widespread adoption of new Internet or
telecommuting technologies or standards, cable-based or otherwise, could
require substantial expenditures by the Company to modify or adapt its
network, products and services and could fundamentally affect the character,
viability and frequency of Internet-based advertising, either of which could
have a material adverse effect on the Company's business, operating results
and financial condition. In addition, new Internet or telecommuting services
or enhancements offered by the Company may contain design flaws or other
defects that could have a material adverse effect on the Company's business,
operating results and financial condition.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
A key component of the Company's strategy is expansion into international
markets. To date, the Company has developed relationships only with United
States, Canadian and Dutch cable system operators and has only recently
entered into agreements in principle with a cable system operator in the
United Kingdom. The Company has extremely limited experience in developing
localized versions of its products and services and in developing
relationships with international cable system operators. The Company may not
be successful in expanding its product and service offerings into foreign
markets. In addition to the uncertainty regarding the Company's ability to
generate revenues from foreign operations and expand its international
presence, there are certain risks inherent in doing business on an
international level, such as: (i) regulatory requirements (including the
regulation of Internet access); (ii) legal uncertainty regarding liability for
information retrieved and replicated in foreign jurisdictions; (iii) export
and import restrictions; (iv) tariffs and other trade barriers; (v)
difficulties in staffing and managing foreign operations; (vi) longer payment
cycles; (vii) problems in collecting accounts receivable; (viii) political
instability; (ix) fluctuations in currency exchange rates; (x) seasonal
reductions in business activity during the summer months in Europe and certain
other parts of the world; and (xi) potentially adverse tax consequences, which
could adversely affect the success of the Company's future international
operations. One or more of such factors could have a material adverse effect
on the Company's future international operations and, consequently, on the
Company's business, operating results and financial condition.
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES
Although the Company's services are not directly subject to current
regulations of the Federal Communication Commission (the "FCC") or any other
federal or state communications regulatory agency, changes in the regulatory
environment relating to the Internet connectivity market, including regulatory
changes that, directly or indirectly, affect telecommunications costs, limit
usage of subscriber-related information or increase the likelihood or scope of
competition from the regional Bell operating companies ("RBOCs") or other
telecommunications companies, could affect the Company's pricing and/or
ability to market its services successfully. For example, regulation of cable
television rates may affect the speed at which cable operators that have
agreed or will agree in the future to provide the @Home service will be able
to upgrade their cable systems as necessary to carry the Company's services.
Similarly, enactment of proposed privacy legislation currently pending in
Congress, which would restrict the use of subscriber information by
interactive computer services for marketing and other purposes, could
adversely affect the marketing of the Company's services as well as its
revenue from advertising.
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The Cable Partners in the United States have advised the Company that their
local cable operators typically have elected to classify the provision of all
or some of the @Home services as "additional cable services" under their
respective local franchise agreements, and to pay franchise fees in accordance
therewith. Local franchise authorities may attempt to subject cable systems to
higher or other franchise fees or taxes or otherwise seek to require cable
operators to obtain additional franchises, in connection with their
distribution of the @Home service. There are thousands of franchise
authorities, and thus it will be difficult or impossible for the Company or
such cable operators to operate under a unified set of franchise requirements.
Legislation has been introduced in Congress that if enacted would impose a
moratorium limiting the ability of state and local governments to impose taxes
on Internet services pending the formulation and submission to Congress by the
President of recommendations concerning appropriate parameters for state and
local taxation of such services. However, state and local authorities have
expressed strong opposition to such legislation, and there remains the
possibility that the @Home services may be subject to potentially burdensome
taxes or other assessments in a multitude of state and local jurisdictions.
It is also possible that governmental authorities may attempt to classify
the Company in some other manner (e.g., as a common carrier-type service or
information service) and impose additional potentially burdensome regulatory
requirements on the Company, the Cable Partners or other cable operators
carrying the Company's services. In the event that the FCC or another
governmental agency were to classify the cable system operators as "common
carriers" of Internet services, or cable system operators were to seek such
classification as a means of protecting themselves against liabilities, the
Company's rights as the exclusive residential high-speed ISP over the systems
of certain of its Cable Partners could be lost. In addition, if the Company or
its Cable Partners in the United States were classified as common carriers,
they could be subject to government-regulated tariff schedules for the amounts
they could charge for their services. Rogers and Shaw have informed the
Company that, due to certain Canadian regulations, they are required to
provide access to their respective networks to third-party ISPs. Although no
third party currently uses Rogers' or Shaw's networks for purposes of offering
Internet services, these Canadian regulations preclude the Company from having
an exclusive contractual right to access to these networks.
In addition, the FCC is currently considering requests by Bell Atlantic
Corporation, Ameritech Corporation, U S WEST and Pacific Bell for relief
pursuant to section 706 of the 1996 Telecommunications Act ("1996 Act") from
various restrictions and regulatory requirements that, according to these
companies, inhibit their provision of Internet services. These petitions seek
authority to provide high-speed, packet-switched data services, including
Internet access and related services, without regard to Local Access and
Transport Area ("LATA") boundaries and free from otherwise applicable access,
unbundling and resale obligations and certain other regulatory requirements.
The FCC also is considering a separate request to provide all incumbent local
exchange carriers ("ILECs") with significant relief from existing access,
unbundling, pricing, and cost recovery rules and policies, in order to
encourage the deployment and operations by the ILECs of high-capacity, packet-
switched networks and other advanced telecommunications facilities and related
services, including Internet access services. Section 706 of the 1996 Act also
directs the FCC to initiate, no later than August 8, 1998, an inquiry into the
deployment of advanced telecommunications capability and to take immediate
action to accelerate such deployment if necessary. The FCC may use the
occasion of this inquiry to examine the feasibility and lawfulness of common
carrier regulation for cable systems, to provide some measure of the
regulatory relief for high speed data services requested by the RBOCs and
ILECs, or both.
POTENTIAL LIABILITY FOR DEFAMATORY OR INDECENT CONTENT
The law relating to the liability of ISPs and OSPs for information carried
on or disseminated through their networks is currently unsettled. It is
possible that claims could be made against ISPs and OSPs under both United
States and foreign law for defamation, negligence, copyright or trademark
infringement, or other theories based on the nature and content of the
materials disseminated through their networks. Several private lawsuits
seeking to impose such liability upon ISPs and OSPs are currently pending. In
addition, legislation has been proposed that imposes liability for or
prohibits the transmission over the Internet of certain types of information.
The imposition upon ISPs or OSPs of potential liability for information
carried on or disseminated through their
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systems could require the Company to implement measures to reduce its exposure
to such liability, which may require the expenditure of substantial resources,
or to discontinue certain service or product offerings. The increased
attention focused upon liability issues as a result of these lawsuits and
legislative proposals could impact the growth of Internet use. Furthermore,
certain foreign governments, such as Germany, have enforced laws and
regulations related to content distributed over the Internet that are more
strict than those currently in place in the United States. There can be no
assurance that one or more of these factors will not have a material adverse
effect on the Company's business, operating results and financial condition.
DILUTION FROM CERTAIN TRANSACTIONS
As a result of a transaction effective October 2, 1997, whereby Cablevision
became a party to the agreement between the Company and TCI, Comcast and Cox
to distribute the @Home service on substantially the same terms and conditions
as TCI, Comcast and Cox, Cablevision was granted warrants to purchase up to
10,946,936 shares of the Company's Series A Common Stock at an exercise price
of $0.50 per share under certain conditions (the "Cablevision Agreement"). A
portion of the warrants issued to Cablevision (the "Contingent Warrants") do
not become exercisable unless certain cable systems are transferred by TCI to
Cablevision. To the extent that Cablevision exercises its warrants, the
Company's stockholders will experience substantial dilution. The Company
recorded a non-cash charge in the fourth quarter of 1997 of $172.6 million,
which represents the cost of the Cablevision Agreement, based on the fair
value of the warrants that were not Contingent Warrants. Additional charges to
operations of approximately $83.3 million were recorded in the first quarter
of 1998 in connection with a portion of the Contingent Warrants becoming
exercisable as a result of the transfer of certain cable systems owned by TCI
to Cablevision on March 4, 1998. Additional charges to operations may be
recorded in connection with the remaining Contingent Warrants to purchase
715,638 shares of Series A Common Stock becoming exercisable if and when
certain other cable systems owned by TCI are transferred to Cablevision. In
addition, in March 1998, the Company issued performance-based warrants to
Rogers and Shaw to purchase up to 5,000,000 shares of Series A Common Stock at
an exercise price of $10.50 per share. These warrants will become exercisable
when, as and if Rogers and Shaw meet certain performance milestones for homes
passed, subscribers and revenue. The Company has also issued warrants to
purchase an aggregate of 5,272,100 shares of Series A Common Stock at an
exercise price of $10.50 per share to certain new Cable Partners in connection
with distribution agreements entered into in the second quarter of 1998. These
warrants will become exercisable based on the number of homes that those Cable
Partners upgrade to two-way or one-way HFC cable (for one Cable Partner) and
two-way HFC cable (for the other Cable Partners) and that are capable of
accessing the @Home service. To the extent that such Cable Partners exercise
their warrants, the Company's stockholders would experience additional
dilution. The Company also may issue additional stock, or warrants to purchase
the same, at less than fair market value in connection with its efforts to
expand its distribution of the @Home service to other cable operators.
POSSIBLE VOLATILITY OF STOCK PRICE
The stock market has from time to time experienced significant price and
volume fluctuations. In addition, the market price of the shares of the
Company's Series A Common Stock, similar to the market prices of other
Internet companies, has been and is likely to be highly volatile. Factors such
as fluctuations in the Company's operating results, announcements of
technological innovations or new products by the Company or its competitors,
regulatory actions, market rumors, acquisitions in the telecommunications or
cable industries and general market conditions may have a significant effect
on the market price of the Company's Series A Common Stock.
YEAR 2000 RISKS
The Company continues to review its internal management information systems
as well as third parties' systems in order to assess the possible impact of
year 2000 issues on its business. The Company expects the result of this
review and assessment will enable it to develop plans for any necessary
changes, including the testing and implementation of these changes, and to
make estimates of the likely time and costs of any required changes. To the
extent that such modifications need to be made, the Company will endeavor to
make them on a timely basis and does not believe that the cost of such
modifications will have a material effect on the Company's operating results,
due to its relatively short operating history and small number of installed
computer systems.
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USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,500,000 shares of
Series A Common Stock offered by the Company hereby are estimated to be
approximately $109.9 million (approximately $126.5 million if the
Underwriters' over-allotment option is exercised in full), assuming a public
offering price of $46 1/2 per share and after deducting the estimated
underwriting discount and offering expenses payable by the Company. The
Company intends to use the net proceeds for general corporate purposes,
including working capital and capital expenditures, including those associated
with domestic and international expansion and additional backbone capacity. A
portion of the net proceeds may also be used to acquire or invest in
complementary businesses or products or to obtain the right to use
complementary technologies. The Company has no current plans, agreements or
commitments with respect to any such acquisition or investment, and the
Company is not currently engaged in any negotiations with respect to any such
transaction. Pending such uses, the net proceeds of this offering will be
invested in short-term, interest-bearing, investment grade securities.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its capital
stock and does not anticipate paying any cash dividends on its capital stock
in the foreseeable future.
PRICE RANGE OF SERIES A COMMON STOCK
The Company's Series A Common Stock has been traded on the Nasdaq National
Market under the symbol "ATHM" since July 11, 1997, the date of the Company's
initial public offering. The following table sets forth, for the periods
indicated, the high and low sales prices for the Series A Common Stock as
reported by the Nasdaq National Market:
<TABLE>
<CAPTION>
HIGH LOW
--------- --------
<S> <C> <C>
FISCAL YEAR ENDED DECEMBER 31, 1997:
Third Quarter (from July 11, 1997)......................... $25 1/2 $16 5/8
Fourth Quarter............................................. 30 5/8 18
FISCAL YEAR ENDING DECEMBER 31, 1998:
First Quarter.............................................. $38 1/8 $20 1/2
Second Quarter............................................. 57 1/4 29 3/4
Third Quarter (through July 27, 1998)...................... 54 15/16 42 9/16
</TABLE>
On July 27, 1998, the last reported sale price for the Series A Common Stock
on the Nasdaq National Market was $46 1/2 per share. As of July 24, 1998, the
Company estimates that there were approximately 650 holders of record of the
Series A Common Stock.
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BUSINESS
At Home Corporation is the leading provider of broadband Internet services
over the cable television infrastructure to consumers. By virtue of its
relationships with 17 cable companies in North America and Europe, @Home has
access to approximately 58.5 million homes, which includes exclusive access to
over 50% of the households in the United States and Canada. @Home also
provides broadband Internet services to businesses over both the cable
television infrastructure and digital telecommunications lines.
The Company's primary offering, the @Home service, allows residential
subscribers to connect their personal computers via cable modems to a high-
speed Internet backbone network developed and managed by the Company. This
service enables subscribers to receive the "@Home Experience," which includes
Internet service over HFC cable at peak transmission speeds over 100 times
faster than typical dial-up connections, "always on" connection and rich
multimedia programming through its broadband Internet portal. The technology
foundation of the @Home Experience is the Company's scalable, distributed,
intelligent network architecture (the "@Home Broadband Network"), a "parallel
Internet" that optimizes traffic routing, improves security and consistency of
service, and facilitates end-to-end network management, enhancing the
Company's ability to address performance bottlenecks before they affect the
user experience.
The Company's @Media group has established the @Home launch screen (the
"@Home Portal") as the leading broadband Internet portal, providing a gateway
to compelling multimedia and electronic commerce offerings on the Internet. To
date, the @Home Experience has generated greater page views per subscriber
than are reported by the leading narrowband Internet portal companies. The
@Media group works with content providers to facilitate the creation of rich
multimedia broadband content delivered through the @Home Portal and to
facilitate online transactions and services for @Home subscribers. Multimedia
content offerings include on-demand video clips from partners such as
Bloomberg, CNN Interactive and the National Basketball Association, on-demand
music and CD previews provided by the Company's Tune-In service and low-
latency multiplayer gaming from SegaSoft. Electronic commerce partners include
Amazon.com, the leading online bookseller, SoftwareNow.com, an online software
distributor, and Travelocity, a leading online travel site. The @Media group
also sells advertising on a CPM basis as well as on a sponsorship basis. The
Company had over 30 advertisers in the quarter ended June 30, 1998, including
Clorox, Disney, General Motors, Home Box Office, Kraft, MGM, Procter & Gamble,
Standard & Poor's, Toyota and Unilever. For businesses, the Company's @Work
services provide a platform for Internet, intranet and extranet connectivity
solutions and networked business applications over both cable infrastructure
and digital telecommunications lines. In order to accelerate deployment of the
@Work connectivity and hosting solutions into major U.S. metropolitan areas,
the Company has established strategic relationships with TCG, the country's
largest CLEC, Northpoint, a provider of DSL services to businesses, and
Exodus, a provider of Internet hosting and network management services. By
combining the Company's broadband distributed network architecture with cable,
telephone and technology relationships, the @Work services provide a
compelling platform for nationwide delivery of network-based business
applications. The Company has developed this platform at a low incremental
cost by leveraging its existing @Home Broadband Network investment. The
Company currently provides @Work services to more than 1,000 businesses.
The Company has entered into distribution arrangements for the @Home service
with 15 cable companies in North America whose cable systems pass
approximately 57.1 million homes, including TCI, Cablevision, Comcast, Cox,
Rogers, Shaw, Bresnan, Century, Cogeco, Garden State, Insight, Jones, Lenfest,
Marcus and InterMedia. As of June 30, 1998, approximately 7.9 million of these
homes were passed by upgraded two-way HFC cable, and the Company believes that
the Cable Partners will complete the upgrade of systems passing a majority of
their homes within five years. In order to shorten time to market for cable
operators, the Company provides a turnkey solution, which includes not only a
technology platform and a national brand, but also ongoing marketing, customer
service, billing and product development support. The Company has launched the
@Home service through its Cable Partners in portions of 31 cities and
communities in the United States and Canada and has approximately 147,000
subscribers, including recently acquired Internet subscribers served by Jones
and Cogeco that are being converted to the @Home service.
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As part of its strategy to expand into international markets, the Company
has entered into agreements for the distribution of the @Home service by
CasTel and Palet Kabelcom in the Netherlands and has entered into an agreement
in principle with ComTel Limited in the United Kingdom. The Company has also
initiated a distribution program with leading consumer electronics retailers,
including CompUSA and Computer City, to facilitate the sale of the @Home
service and cable modems compliant with DOCSIS. In addition, the Company is
working with CableLabs to develop advanced digital set-top boxes to provide
broadband Internet access via television sets and to accelerate transformation
of the Internet into a mass medium. TCI has entered into a non-binding
memorandum of understanding with General Instrument for the purchase of up to
11 million advanced digital set-top boxes and has selected @Home to develop
software and provide integration services for this platform.
RECENT EVENTS
On June 24, 1998, TCI and AT&T announced that they had signed a definitive
merger agreement pursuant to which AT&T will acquire TCI. AT&T has announced
that it currently intends to combine following the merger TCI's cable,
telecommunications and high-speed Internet businesses, including TCI's
controlling equity interest in the Company with AT&T's consumer businesses to
form AT&T Consumer Services, which will provide a broad set of consumer
communications services, including local, long distance, wireless and
international communications, cable television and dial-up and high-speed
Internet access services under the AT&T brand name. In announcing the merger,
AT&T stated its intention to accelerate the upgrade of TCI's cable
infrastructure significantly, enabling AT&T to begin providing digital
telephony and data services to consumers by the end of 1999. AT&T and TCI
anticipate that the merger, which is subject to regulatory and stockholder
approvals, will be completed in the first half of 1999. In addition, in July
1998, AT&T acquired TCG.
The Company believes that AT&T's acquisition of TCG and of TCI's cable,
telecommunications and high-speed Internet businesses may benefit the Company
by increasing the rate at which TCI's cable facilities will be upgraded to the
two-way HFC cable necessary to carry the Company's services, by allowing the
Company to utilize the strength of AT&T's brand in marketing the @Home service
to consumers and by increasing the potential for cooperation between the
Company and TCG. However, these benefits may not be realized. See "Risk
Factors--AT&T Acquisition of TCI and TCG."
PRODUCTS AND SERVICES
@Home Service
The Company's primary offering is the @Home service, a comprehensive
broadband Internet solution that leverages the two-way HFC cable television
infrastructure and the Company's technological and programming capabilities to
provide the @Home Experience, which the Company believes is the most
compelling consumer Internet experience currently available. By connecting via
a cable modem to the @Home Broadband Network through the local cable
infrastructure, subscribers to the @Home service can achieve peak data
transmission speeds of 2 to 5 Mbps (2,000 Kbps to 5,000 Kbps), which is over
100 times faster than the peak data transmission speed of a 28.8 Kbps dial-up
modem. This high bandwidth enables compelling multimedia applications,
broadband advertising, online commerce and multiplayer games. The @Home
service offering also includes standard ISP functionality, including Web page
hosting for subscribers, and the ability to create and manage multiple email
accounts. The Company also offers the ability to share Internet access across
multiple PCs in the home for an additional monthly fee. A critical
differentiation of the @Home service is that the two-way cable infrastructure
is "always on," providing instantaneous access to the Internet and eliminating
the need for a time consuming dial-up procedure using the telephone network.
The Company's @Media group has established the @Home launch screen as the
leading broadband Internet portal, providing a gateway to compelling
multimedia and electronic commerce offerings on the Internet. The @Home Portal
provides the user with access to an array of multimedia content "Channels,"
powerful tools and
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Web-based applications designed specifically to take advantage of the
Company's broadband network architecture. The Company believes that the @Home
Portal broadens the appeal of online services beyond technology enthusiasts to
the mass market by facilitating access to broadband content (such as animated
graphics, near-CD-quality audio and video clips) and stimulating persistent
usage with timely, dynamic, highly sought-after data streams, as well as by
simplifying navigation, increasing the subscriber's knowledge of Internet
resources. The @Home Portal is organized around a series of "Channels," which
are defined by both topical subjects (such as news, technology, sports or
popular culture) and audiences (such as children, game players or shoppers),
and which present timely and compelling editorial content. Through the @Home
Portal, the Company generates and directs regular audience traffic to @Media
and content providers' offerings. The @Home Portal includes a variety of tools
to obtain information quickly and easily. For example, the "How Do I" section,
which is one click from the @Home Portal, provides users with a variety of
step-by-step solutions to such tasks as making plane reservations and checking
movie schedules. The service also includes a "Member Services" area where the
customer can manage accounts and services via a simple graphical interface.
The Company has also recently launched the @Home Assistant, a proprietary
@Home software application, which exploits @Home's "always-on" connection to
provide "out of browser" one-click access to personalized stock prices, news
feeds, local weather, sports scores and dining information. The @Home
Experience also permits @Home subscribers to access online services, purchase
software and engage in multiplayer gaming and interactive shopping.
The @Home service is currently offered to consumers in the United States for
flat monthly fees generally ranging from $35 to $55, and typically includes a
cable modem provided by the Cable Partner. Installation of the @Home service
is provided by the Cable Partner at prices generally ranging from $75 to $175.
Upon installation, each new subscriber's personal computer is configured for
the @Home Experience with @Home client software, which provides access to the
@Home Portal. In addition to making the Internet considerably easier to access
for consumers, the @Home client software offers advertisers and content
providers a rich and consistent client environment for delivering multimedia
advertising, content and applications. The @Home client software includes a
customized browser from Netscape Communications Corporation ("Netscape") and
other high-performance and multimedia software optimized for the @Home
Experience. The Company also provides a customized version of Microsoft's
Internet Explorer 4.0, thereby giving subscribers a choice of browsers. The
Company has also initiated a distribution program with leading consumer
electronic retailers, including CompUSA and Computer City, to facilitate the
sale of the @Home service and DOCSIS-compliant cable modems.
The Company is currently developing the capability to deliver the @Home
Experience to televisions via set-top boxes connected to the cable
infrastructure, and thereby meet the needs of a broader market of non-computer
users. According to IDC, there are approximately 282 million television sets
compared to approximately 66 million personal computers in United States
households. In February 1998, the Company entered into a memorandum of
understanding with TCI's NDTC pursuant to which the Company agreed to develop
software and provide integration services for TCI's advanced set-top devices
that will deliver both digital television and Internet data services. The
memorandum of understanding contemplates that @Home will provide Internet
connectivity for these devices, supply email accounts via geographically
dispersed mail servers and provide overall system management for TCI's email
services. @Home also would work with NDTC on the overall software integration
related to TCI's advanced digital set-top devices. Completion of the
transactions contemplated by the memorandum of understanding is subject to
negotiation of a definitive agreement and other conditions, and there can be
no assurance such transactions will be consummated. See "Risk Factors--Risks
Associated with Joint Development Efforts."
@Work Services
For businesses, @Work services provide end-to-end managed connectivity for
Internet, intranet and extranet solutions over the cable infrastructure and
digital telecommunications lines. In addition, @Work is developing a next
generation platform to support networked business applications and other
value-added data networking solutions such as server hosting and electronic
commerce hosting. In order to accelerate deployment of @Work's connectivity
solutions in metropolitan areas throughout the United States, the Company has
established a
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strategic relationship with TCG, the country's largest CLEC, to provide
targeted co-location and local telephone circuits for infrastructure and
subscriber connectivity. The Company currently offers two services: @Work
Internet and @Work Remote.
@Work Internet. The @Work Internet service delivers dedicated, high-speed,
end-to-end managed Internet connectivity to commercial enterprises over
digital telecommunications lines and HFC cable. The @Work Internet service
offers dedicated access options at peak data transmission speeds ranging from
56 Kbps to 10 Mbps. These solutions are priced competitively vis-a-vis
existing alternatives. As of June 30, 1998, the telco-based @Work Internet
service was available in 21 metropolitan markets including Boston, Chicago,
Denver, Detroit, Los Angeles, New York, Orange County, Philadelphia, Phoenix,
San Diego, San Francisco, Seattle, Vancouver and Washington, D.C. At June 30,
1998, the Company was providing @Work Internet services over digital
telecommunications lines to over 800 corporate customers.
In February 1998, the Company and Cox announced the availability of the
@Work Internet service via Cox's HFC cable infrastructure in Orange County,
Phoenix, and San Diego. Businesses in these markets that are passed by two-way
HFC cable can connect directly to the @Work Internet service. The @Work
Internet HFC service is a shared bandwidth solution that offers peak data
transmission speeds of 2 to 5 Mbps downstream using the @Home Broadband
Network. At June 30, 1998, the Company was providing @Work Internet services
over HFC to over 200 corporate customers.
@Work Remote. The @Work Remote Service is the Company's first Virtual
Private Networking ("VPN") solution. This solution provides a secure, high-
speed method for corporations to extend their Local Area Networks ("LANs") to
telecommuters and branch offices via the cable infrastructure. In November
1997, the Company announced a non-exclusive agreement with TCI, Cox and
Comcast to develop, deploy and market @Work Remote in areas served by these
Cable Partners. The @Work Remote service also includes the network equipment
and software needed to connect corporate LANs securely to the @Home Broadband
Network via high-bandwidth local telephone circuits. @Work Remote users can
gain secure access to all of their corporate LAN resources 24 hours a day,
seven days a week. The Company offers VPN capability between branch offices
and corporate headquarters.
The Company's future @Work service offerings will leverage the Company's
existing connectivity solutions and its broadband network architecture to
deliver more value-added services to commercial customers. @Work expects to
introduce enhanced access services that will include increased service level
options as well as solutions for companies seeking multiple commercial
Internet connections to provide redundancy and load balancing. The Company
also plans to develop and deploy hosting services that allow corporate
information technology professionals to outsource certain networking tasks.
For example, the Company anticipates introducing a variety of commercial
shared Web site hosting and co-location services in the third quarter of 1998.
To further this goal, the Company entered into an agreement in March 1998 with
Exodus, a provider of Internet hosting and network management solutions, to
develop and deploy @Work-branded shared server hosting solutions. These
hosting solutions will also serve as a platform for outsourced network-based,
commercial applications and related management services. In addition, by
designing each of its RDCs to include high-availability, high-performance
servers and mass storage, the Company believes that it will have the ability
to deliver and facilitate next-generation client-server and distributed-object
networked business applications. See "Risk Factors--Risks of Technological
Change."
@Media Services and Technologies
The Company's @Media group has established the @Home Portal as the leading
broadband Internet portal, providing a gateway to compelling multimedia and
electronic commerce offerings on the Internet. To date, the @Home Experience
has generated greater page views per subscriber than are reported by the
leading narrowband
Internet portal companies. The @Media group works with content providers to
facilitate the creation of rich multimedia broadband content delivered through
the @Home Portal and to facilitate online transactions and services for @Home
subscribers.
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The Company believes that growth in its subscriber base will be critical to
attracting advertisers. In addition to traditional sales and marketing
efforts, the Company has developed a variety of compelling programming
services delivered through the @Home Portal in order to drive incremental
subscriber penetration. In addition to receiving advertising fees, the @Media
programming services provide a variety of revenue sources. Examples of @Media
programming services include:
Real-Time News and Entertainment Services. Continuously-updated headlines
delivered in the News, Sports and Finance @Home channels, and video clips
presenting top stories, sports highlights and movie previews. Current
@Media partners include Bloomberg, CNN Interactive, E! Online and the
National Basketball Association.
Interactive Shopping. Evaluate and purchase goods via an interactive
multimedia shopping experience. Current @Media partners include Amazon.com,
AutoConnect, BUYDIRECT, N2K, PC Connection, QVC, Realtor.com, Reel.Com and
Travelocity.
High-Speed Multiplayer Gaming. Download and play popular Internet games
against other online players, delivered via the @Home Games channel. By
combining high speed with very low latency, the @Home Broadband Network
provides an excellent environment for high-quality game play. The Company
has already co-located game servers on the network backbone and is offering
multiplayer online games to @Home subscribers from SegaSoft.
Digital Audio Services. Near-CD-quality audio on various music, talk and
event channels (e.g. jazz, rock and 24-hour sports talk) via the Company's
Tune-In service. Users can simultaneously listen to the Tune-In service and
browse the Internet. Current @Media partners include Bloomberg Radio, CNET
Radio, Net Radio, SportsLine and The DJ.
Software Purchase with Real-Time Downloading. Purchase and download
software titles at speeds substantially faster and with greater reliability
than a typical dial-up modem. @Home has partnered with Release Software to
create the "SoftwareNow" store. In addition to accelerated download speeds,
SoftwareNow.com gives @Home users multiple, unique purchase options
including a "Try-Before-Buy" option and rental software.
Enhanced Search and Directory Services. Leading search and directory
services integrated into the @Home Portal. Current @Media partners include
Inktomi Corporation ("Inktomi"), a leading provider of search solutions,
and Looksmart International Limited, a leading provider of directory
services.
The @Media group offers a series of technologies to assist advertisers and
content providers in delivering compelling multimedia advertising and premium
services, including replication and co-location. Replication enables the
Company's content partners to place copies of their content and applications
locally on the @Home Broadband Network, thereby reducing the possibility of
Internet bottlenecks at the interconnect points. Co-location allows content
providers to co-locate their content servers directly on the @Home Broadband
Network. Content providers can then serve their content to @Home subscribers
without traversing the congested Internet. For example, CNN and Bloomberg
videos are replicated into each of the @Home RDCs. Also, SoftwareNow.com
servers are co-located on the @Home backbone to enable faster downloading of
software, and multiplayer game servers are co-located to enable low-latency
online gaming.
The @Media group sells advertising through several formats including
banners, half-banners, and the "B*box," a broadband audio/video advertising
space. With the B*box, advertisers are not constrained by the Web banner
paradigm and can broaden their creative presentation using video clips, audio
and animation. Advertisers have the ability to enhance their message by using
multimedia tools and technologies such as Flash, Quicktime Video and Real
Audio. The Company derives advertising revenue on a CPM basis as well as on a
sponsorship basis. The Company had over 30 advertisers in the quarter ended
June 30, 1998, including Clorox, Disney, General Motors, Home Box Office,
Kraft, MGM, Procter & Gamble, Standard & Poor's, Toyota and Unilever.
Advertisers have reported response rates (click-throughs) substantially
greater than they currently experience with traditional Web banner
advertisements. The Company believes that advertisers' ability to present
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more compelling messages to online users will lead to advertising rates
greater than those charged for banner advertising on the Web.
In addition to revenue derived from advertisements, the Company has
established relationships with certain of its interactive shopping and gaming
partners whereby the Company participates in the revenues or profits for
certain transactions on the @Home Portal. The Company also allows certain of
its content partners to sponsor certain content channels for a fee.
THE @HOME BROADBAND NETWORK
The Company designed the @Home Broadband Network on the premise that
sustainable, high-performance Internet access requires a new, scalable
architecture to alleviate Internet bottlenecks and to enable true end-to-end
network management capabilities. Residential subscribers access the network
primarily through high-speed cable modems, which attach to their personal
computers via a standard Ethernet connection, while businesses can also
connect through CLEC telecommunications networks. The four key principles of
the Company's network strategy are moving data closer to the user, end-to-end
network management, "always-on" service and scalability.
Moving Data Closer to the User. The @Home Broadband Network utilizes caching
and replication technologies to move the information that a subscriber
requests close to the subscriber. Local caching reduces backbone network
traffic, enabling the @Home Broadband Network to overcome a fundamental
weakness of the Internet--duplicative data transfers. For example, when a
subscriber downloads a video clip from a Web site, the user must "pull" data
across the Internet from that Web site to the user's ISP and finally to the
user's computer. If the user's neighbor requests the same video clip from that
Web site, the neighbor must pull the same data across a similar path. In
contrast, the Company's approach would move the video clip over its high-speed
backbone only once in a given geographic area and retain it in a local cache
near the user's home where it could be accessed by every subscriber within
that area without retransmission over the backbone. This more cost-effective
approach simultaneously improves the end user's performance and reduces
traffic volume across the backbone.
End-to-End Network Management. End-to-end network management is achieved
through the Company's proactive network quality, service and performance
management systems. The @Home Broadband Network provides visibility from the
Company's servers (or content partners' servers) across the backbone and all
the way to the subscriber's home. Because the @Home Broadband Network is
centrally managed, the Company can dynamically identify and enhance network
quality, service and performance, or address issues before they affect the
user experience.
"Always On" Service. The @Home Broadband Network is "always on," unlike
switched technologies such as dial-up and ISDN. The user is always connected
to the Internet as long as his or her computer and cable modem are on. This
eliminates the need for a time-consuming connection process, as with a dial-up
service, and changes the way the customer uses the Internet.
Scalability. The @Home service is architected to be scalable to handle
increasing numbers of subscribers without degradation. Although proximate
users share high-bandwidth access (much like corporate LANs), which may limit
the effective bandwidth that is available to a given subscriber at a given
time, this shared connection is particularly efficient and well suited to the
sporadic nature of Internet traffic, where browsing tends to consume bandwidth
in discrete bursts intermixed with periods of inactivity. As subscriber
penetration increases, the cable operator has multiple cost-effective
alternatives to increase capacity, including allocating additional 6 MHz
channels for the @Home service or reducing the number of subscribers sharing a
given bandwidth by adding nodes, with each node serving a smaller number of
subscribers over the same fiber-optic infrastructure.
22
<PAGE>
The primary components of the @Home Broadband Network are the Company's
high-speed private national backbone, RDCs, regional networks, headends
(including caching servers), network connections and cable modems and the
Network Operations Center.
Private National Backbone. The Company operates its own private national
backbone, which consists of a network of high-speed asynchronous transfer
mode ("ATM") communications services that the Company leases to connect its
RDCs and regional networks with content providers and the Internet. These
services currently operate at a speed of 45 Mbps and can be upgraded to 155
Mbps or higher. This backbone can be viewed as a high-speed "parallel
Internet" that connects via the Company's routers to the Internet at
multiple network access points ("NAPs") with "Tier-One" peering status,
which permits the Company to exchange Internet traffic with other
nationwide ISPs.
Regional Data Centers. The RDCs act as service hubs for defined geographic
areas, such as major metropolitan areas, providing key services, including
email, news groups and chat facilities, to subscribers, managing network
performance proactively, replicating content and applications, and
providing a cost-efficient infrastructure to cache and multicast data
throughout a region and to house local content and subscribers' Web pages.
The Company uses "high availability" servers from Sun Microsystems, Inc.
("Sun") in its RDCs for these mission-critical activities. The Company had
deployed RDCs in 19 geographic areas as of June 30, 1998. The Company
estimates that providing the @Home service throughout North America will
require between 40 and 50 RDCs.
Regional Networks. The regional networks consist of network routers and
switches that interconnect the Company's RDCs and its national backbone to
multiple cable headend facilities at speeds of 45 Mbps to 155 Mbps. These
networks generally take advantage of cable operators' fiber optic
infrastructures that are normally used to transport cable television
signals from a consolidated master headend facility to other headends
within a region. This approach often allows the Company to avoid the high
cost of leasing conventional high-speed communication services from local
telephone companies when deploying high-speed connectivity in a region.
Headends. The cable system headends are connected to each RDC through the
regional network. In order to move data as close to the subscriber as
possible and to avoid repetitive transmission of the same data, the
headends employ high-performance caching servers that store frequently
accessed content locally, thereby greatly reducing the amount of data
transmission (and corresponding transport costs) in higher layers of the
network. In addition, local caching servers can compile far more
comprehensive usage data than is normally attainable on the Internet, which
can be used for network troubleshooting, tuning performance and tailoring
the @Home service.
Network Connections. The last leg of the network connection is from the
headend to the consumer over a cable operator's HFC cable system. Multiple
fiber optic lines carry the signal from the headend out to cable "nodes" in
each neighborhood, which in turn connect through traditional coaxial cable
to the home. These fiber optic nodes typically service from 300 to 2,000
homes in a relatively modern cable system. In such a system, each
television channel requires 6 MHz of the 450-750 MHz of total system
capacity. Downstream transmission of the @Home service utilizes a similar
channel. Upstream transmission, however, utilizes a frequency range not
used for traditional broadcast by cable systems. This range is more prone
to interference than downstream channels, which effectively limits the peak
upstream transmission speed.
Cable Modems. In the home, a cable modem connects to the cable television
coaxial wiring and attaches to the user's personal computer via standard
Ethernet connections. While peak data transmission speed of a cable modem
depends on the specific model and can approach 10-27 Mbps downstream and
0.7-10 Mbps upstream, the performance that subscribers actually experience
is often constrained by the capacity of their personal computers, the
capacity of the server being accessed, and the type of network architecture
utilized. The North American cable industry has adopted a set of interface
specifications for hardware and software to support the delivery of data
services utilizing interoperable cable modems. The Company believes that
these specifications, together with the agreement that the Company entered
into with Intel in July 1997 relating to the development of "plug and play"
modems, will facilitate the growth of the cable modem
23
<PAGE>
industry and the availability of lower cost interoperable cable modems
through retail channels. See "Risk Factors--Unproven Network Scalability,
Speed and Security" and "--Dependence on Two-Way Cable Modems; New Industry
Standard."
Network Operations Center. The Company provides end-to-end network
management through its NOC. The NOC uses advanced network management tools
and systems to monitor the network infrastructure on a 24 x 7 basis,
enhancing its ability to address performance bottlenecks before they affect
the user experience. From the NOC, the Company can manage the @Home
Broadband Network from end-to-end, including the backbone, RDCs, regional
networks, headend facilities, servers and other components of the network
infrastructure to the user's home. See "Risk Factors--Risk of System
Failure."
The Company also utilizes certain key technologies from third parties to
build and manage the @Home Broadband Network. In particular, the Company has
established strategic relationships with Sun for high availability servers,
Silicon Graphics, Inc. ("SGI") for caching servers, Cisco Systems, Inc. for
network routing and switching hardware, Sprint for national switched ATM
backbone services, Objective Systems Integrators, Inc. for network management
software, Tivoli Systems Inc. for systems management software to operate RDCs
remotely, Oracle Corporation for advanced database management software,
Netscape and Microsoft for server and browser software, Inktomi for proxy and
caching software and Software.com for more efficient mail delivery. See "Risk
Factors--Risks of Technological Change" and "--Unproven Network Scalability,
Speed and Security."
PRODUCT DEVELOPMENT AND ENGINEERING
The Company's product development and engineering efforts focus on: (i)
design and development of new technologies and products to increase the speed
and efficiency of the Company's broadband network architecture and to
facilitate the development and distribution of high bandwidth content and
commercial value-added applications; (ii) adaptation of the Company's network
services for use over non-HFC access technologies, such as DSL; and (iii)
porting the appropriate components of the @Home Experience to TV-based
Internet devices and developing software, email support and related services
for these devices. See "Risk Factors--Risks Associated with Joint Development
Effort."
The Company's product development and engineering expenses for the period
from March 28, 1995 (inception) to December 31, 1995, the years ended December
31, 1996 and 1997 and the six months ended June 30, 1998 were $1.4 million,
$6.3 million, $12.0 million and $7.5 million, respectively.
24
<PAGE>
STRATEGIC DISTRIBUTION RELATIONSHIPS
Strategic Relationships with North American Cable Partners. The Company has
strategic relationships with 15 cable companies whose systems pass
approximately 57.1 million homes in North America. Subject to certain
exceptions, TCI, Comcast, Cablevision and Cox have granted the Company the
exclusive right to offer high-bandwidth residential consumer Internet services
over their cable systems until June 4, 2002. Rogers and Shaw have agreed to
market and promote the @Home service in Canada on an exclusive basis. The
Company's other Cable Partners in North America have entered into agreements
to distribute the @Home service on an exclusive basis through certain of their
cable systems. The following table sets forth what the Company believes are
the approximate number of homes passed by the cable systems of each of the
Cable Partners and the principal cities and regions served by their cable
systems as of June 30, 1998. See "Risk Factors--No Obligation of Principal
U.S. Cable Partners to Carry the Company's Services; Limitations on Their
Exclusivity."
<TABLE>
<CAPTION>
MILLIONS OF
HOMES PRINCIPAL CITIES AND COMMUNITIES SERVED
CABLE PARTNER PASSED BY CABLE PARTNERS' SYSTEMS
------------- ----------- ---------------------------------------
<C> <C> <S>
TCI.................. 22.7(1)(2) Chicago, Dallas, Denver, Hartford,
Miami, Pittsburgh, San Francisco Bay
Area, Seattle and Washington, D.C.
Comcast.............. 7.2 Baltimore, Detroit, Northern New Jersey,
Orange County, Philadelphia and
Sarasota
Cox.................. 5.6(3) Hampton Roads, Hartford, Las Vegas, New
Orleans, Oklahoma City, Omaha, Orange
County, Phoenix, Providence and San
Diego
Cablevision.......... 5.1(4) Boston, Cleveland, Long Island and
Southern Connecticut
Rogers............... 2.8 London, Ottawa, Toronto and Vancouver
Century.............. 2.8 Colorado Springs and Los Angeles
Jones................ 2.4(5) Independence, Savannah and Washington,
D.C. Area
Shaw................. 2.0 Calgary, Edmonton, Saskatoon, Victoria,
Windsor and Winnipeg
Marcus............... 2.0(6) Fort Worth
InterMedia........... 1.4(6) Asheville, Greenville, Nashville and
Spartanburg
Lenfest.............. 1.4 Northern Delaware, Southeastern
Pennsylvania and Southern New Jersey
Cogeco............... 1.0(5) Ontario and Quebec
Insight.............. 0.4 Illinois and Indiana
Garden State......... 0.3 Southern New Jersey
Bresnan.............. 0.1 Michigan
-------
TOTAL............... 57.1
=======
</TABLE>
- --------
(1) TCI has announced the proposed sale or transfer of a number of cable
systems to other cable companies or joint ventures, some of which do not
currently have distribution arrangements with the Company. Although TCI
has informed the Company that it is attempting to cause certain of these
cable systems to remain subject to the Exclusivity Obligations, there can
be no assurance that these efforts will be successful. See "Risk Factors--
Potential Disposition of Cable Systems by Principal U.S. Cable Partners."
(2) Includes 357,819 homes that TCI anticipates transferring to Cablevision at
a later date.
(3) Includes approximately 506,000 homes in Las Vegas that are expected to be
transferred to Cox in the fourth quarter of 1998.
(4) Does not include 357,819 homes that TCI anticipates transferring to
Cablevision at a later date.
(5) Certain of the homes passed by such Cable Partner's cable systems are not
subject to the Exclusivity Obligations.
(6) Represents total homes passed by such Cable Partner's cable systems. The
Company has agreements for distribution of its @Home service only with
respect to the cities and communities listed, which represent a small
portion of the total homes passed.
25
<PAGE>
Of the 57.1 million homes, approximately 7.9 million were passed by upgraded
two-way HFC cable as of June 30, 1998, and the Company believes that the Cable
Partners will complete the upgrade of systems passing a majority of their
homes within five years. However, certain of the Cable Partners have limited
experience with these upgrades, and these investments have placed a
significant strain on the financial, managerial, operating and other resources
of the Cable Partners, most of which are already highly leveraged, and thus
have been, and the Company expects will continue to be, subject to change,
delay or cancellation. Although the Company's commercial success depends on
the successful and timely completion of these infrastructure upgrades, most of
the Cable Partners are under no obligation to the Company to upgrade systems
or to roll out, market or promote the Company's services. In addition, most of
the Cable Partners have not agreed to any specific schedule for rolling out
two-way HFC infrastructure improvements, and most of the Cable Partners are
not contractually required to achieve any specific roll-out schedule. See
"Risk Factors--Dependence on Cable Partners to Upgrade to Two-Way Cable
Infrastructure Necessary to Support the @Home Service; Uncertain Availability
and Timing of Upgrades" and "--Potential Disposition of Cable Systems by
Principal U.S. Cable Partners."
As of June 30, 1998, the Company had approximately 147,000 subscribers in
the United States and Canada, including recently acquired Internet subscribers
served by Jones and Cogeco that are being converted to the @Home service. As
of June 30, 1998, Cablevision, Comcast, Cox, InterMedia, Marcus, Rogers, Shaw
and TCI had launched the @Home service in portions of the cities and
communities set forth in the following table.
<TABLE>
<CAPTION>
CABLE
PARTNERS CITIES & COMMUNITIES
--------------------------------------------------------
<S> <C> <C>
CABLEVISION
Norwalk, CT
--------------------------------------------------------
Orange County,
COMCAST Atlanta, GA CA
Baltimore, MD Philadelphia, PA
Detroit, MI Sarasota, FL
Chesterfield, VA
--------------------------------------------------------
Orange County,
COX Hampton Roads, VA CA
Hartford, CT Phoenix, AZ
Oklahoma City, OK Providence, RI
Omaha, NE San Diego, CA
--------------------------------------------------------
INTERMEDIA Greenville, SC
Nashville, TN
Spartanburg, SC
--------------------------------------------------------
MARCUS Fort Worth, TX
--------------------------------------------------------
ROGERS Toronto, ON
Vancouver, BC
--------------------------------------------------------
SHAW Calgary, SK
Toronto, ON
Victoria, BC
--------------------------------------------------------
TCI Arlington Heights, IL Hartford, CT
Dallas, TX Fremont, CA
Denver, CO Seattle, WA
</TABLE>
In order to shorten time to market for cable operators, the Company provides
a turnkey solution, which includes not only a technology platform, but also a
national brand, marketing, customer service and billing. This solution enables
the Cable Partners to leverage their respective infrastructures to deliver
high-bandwidth interactive data services that represent significant new
revenue opportunities. The Company's Cable Partners have the additional
opportunity to develop and receive all the revenues derived from local content
distributed locally through portions of the @Home Broadband Network to local
subscribers. The Cable Partners bear the cost of upgrading and maintaining
their cable systems to provide high-speed two-way data transmission,
installing the
26
<PAGE>
@Home service in subscribers' homes, procuring the cable modems needed to
interface with the @Home Broadband Network and local marketing efforts. See
"Risk Factors--Subscriber Growth Risks for the @Home Service."
Under the current Principal U.S. Cable Partner arrangements, the Company
receives 35% of both the basic monthly fees and the fees for premium services,
and the Principal U.S. Cable Partner retains the entire installation payment.
In Canada, the Company receives a smaller percentage of the monthly
subscription fees billed by Rogers and Shaw because Rogers and Shaw are
responsible for various costs that are not borne by the Company's Cable
Partners in the United States such as the costs of providing additional
customer support, data transport within Canada, and marketing and programming.
In international markets, the Company anticipates that the subscriber
pricing and revenue or royalty splits with cable system operators will be
different from those that prevail in the United States based on differences in
services and content provided by the international cable system operators,
data transport costs and regulatory environments. To the extent that the
Company offers terms of distribution and other services to international cable
system operators that are more favorable than those offered to the four
Principal U.S. Cable Partners, these Principal U.S. Cable Partners have the
right to obtain such more favorable terms under a "most favored nation"
provision in the Master Distribution Agreement entered into by the Principal
U.S. Cable Partners and @Home as of October 10, 1997.
Strategic Relationships with Cable Partners Outside of North America. On
July 15, 1998, the Company entered into a Joint Venture Agreement with Edon
and MEGA Limburg Telediensten N.V. and N.V. PNEM Teleservices, together acting
under the trade name Palet Kabelcom ("Palet Kabelcom") (Edon and Palet
Kabelcom are each multi-system cable operators in The Netherlands which
together cover approximately twenty percent (20%) of homes served by cable in
The Netherlands), to create a Netherlands limited liability company to be
known as @Home Benelux B.V. ("@Home Benelux"). @Home Benelux will deliver a
customized version of the Company's Internet services to residential cable
subscribers in The Netherlands and, later, throughout the Dutch-speaking
Benelux territories. In connection with the formation of @Home Benelux, the
Company has agreed to license to @Home Benelux its core technologies on an
exclusive basis in the Dutch-speaking Benelux territories for a period of
seven years and will perform certain management services in connection with
the start-up of @Home Benelux. Edon and Palet Kabelcom have each agreed to the
exclusive distribution via their cable networks of the Company's Internet
services also for a seven year period. @Home Benelux will also seek to expand
its penetration of homes served by cable in the Benelux territories by
entering into additional exclusive distribution agreements with other multi-
system cable operators. The Company believes that @Home Benelux will begin
delivery of the Company's services to customers in The Netherlands in the
first quarter of 1999.
Agreement with TCG. The Company has a Master Communications Services
Agreement with TCG, the largest CLEC in the United States, which provides
high-speed fiber optic telecommunications services to commercial customer
sites in 65 metropolitan centers in the United States. Under its agreement
with the Company, TCG provides the Company with telecommunications facilities
management and network services for the local telecommunications transport
requirements of the Company's @Work services. In markets served by TCG
networks, TCG provides the Company with (i) the ability to co-locate its
equipment within TCG's network distribution facilities and (ii) transport
access facilities to and from the co-located equipment, including all services
provided completely on TCG's network and services provided through a
combination of TCG's network and the network of a third-party local exchange
carrier. The agreement provides the Company with such telecommunications
services at rates generally at or below those of competing carriers, and the
ability to co-locate the Company's RDCs within TCG's network distribution
facilities at favorable rates. The Company's access to TCG's fiber optic
network and switching infrastructure gives the Company a nationwide
opportunity in the commercial marketplace, which the Company believes will
accelerate the deployment of the Company's @Work services into major United
States markets. In July 1998, AT&T acquired TCG, and there can be no assurance
that the Company's favorable relationship with TCG will continue or will
provide the anticipated benefits.
27
<PAGE>
Agreement with Northpoint. In June 1998, the Company entered into an
agreement with Northpoint, a wholesale data CLEC that provides DSL access to
small and medium sized businesses, whereby Northpoint provides "local loops"
that represent an additional last-mile transport option for @Work's Internet
access and networking offerings. Northpoint currently offers service in the
San Francisco Bay Area and metropolitan Los Angeles and plans to expand
nationally over the next several years. As part of the agreement, the Company
will receive engineering and operational support from Northpoint, and
Northpoint will make specific marketing commitments in consultation with the
Company as it builds out its network around the United States. The Company
believes that favorable access to Northpoint's DSL transport services will
facilitate @Work's deployment of value-priced dedicated commercial Internet
access services aimed at small businesses that historically have relied on
dial-up or ISDN access options.
Agreement with Exodus. In March 1998, the Company entered into an agreement
with Exodus, a provider of Internet hosting and network management services,
under which Exodus will work with the Company to develop and implement
customized, @Work-branded versions of Exodus' server hosting and network
management services solutions that leverage Exodus facilities and
infrastructure. The Company will market and sell these solutions in
conjunction with @Work's connectivity and value-added network applications.
Additionally, Exodus has committed to market and resell certain @Work
commercial connectivity and value-added application solutions. Exodus and the
Company will also work to interconnect their respective networks, allowing the
Company to take advantage of Exodus' series of private and public peering
relationships. The Company believes that favorable access to these hosting
capabilities will accelerate the development and implementation of @Work's
network-based applications and other services.
28
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company, and their ages and
positions, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Thomas A. Jermoluk...... 42 Chairman of the Board, President and Chief Executive Officer
David P. Bagshaw........ 45 Senior Vice President, @Media Group
Leilani T. Gayles....... 43 Vice President, Human Resources
Dean A. Gilbert......... 41 Senior Vice President and General Manager, @Home Group
Kenneth A. Goldman...... 49 Senior Vice President and Chief Financial Officer
Adam Grosser............ 37 Vice President, Product Development
Donald P. Hutchison..... 41 Senior Vice President and General Manager, @Work Group
Milo S. Medin........... 35 Senior Vice President and Chief Technology Officer
John L. O'Farrell....... 39 Senior Vice President, International
David G. Pine........... 39 Vice President, General Counsel and Secretary
Robert E. Tomasi, Jr. .. 46 Senior Vice President, Operations
William R. Hearst
III(1)................. 49 Vice Chairman
James L. Barksdale...... 55 Director
Joseph W. Cece.......... 44 Director
L. John Doerr(2)........ 47 Director
Leo J. Hindery, Jr. .... 50 Director
John C. Malone.......... 57 Director
Bruce W. Ravenel(1)(2).. 48 Director
Brian L. Roberts........ 39 Director
Larry E. Romrell........ 58 Director
James R. Shaw........... 40 Director
David M. Woodrow(1)..... 52 Director
</TABLE>
- --------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
Thomas A. Jermoluk has served as Chairman of the Board, President and Chief
Executive Officer of the Company since he joined the Company in July 1996.
From 1994 to July 1996, he was President and, from 1992 to July 1996, he was
Chief Operating Officer of SGI, a visual computing company. From 1991 to 1994,
Mr. Jermoluk was Executive Vice President of SGI, and, from 1988 to 1991, he
was Vice President and General Manager of SGI's Advanced System Division. From
October 1993 to August 1996, he was a member of the board of directors of SGI.
Prior to joining SGI in 1986, Mr. Jermoluk managed a variety of hardware and
software development projects at Hewlett-Packard Company and Bell
Laboratories. He currently serves on the board of directors of Forte Software,
Inc. Mr. Jermoluk holds B.S. and M.S. degrees in Computer Science from
Virginia Tech.
David P. Bagshaw has served as the Senior Vice President and General
Manager, @Media Group of the Company since he joined the Company in September
1996. From August 1991 to August 1996, he served as Vice President of
Marketing for SGI, where he was responsible for various marketing
organizations and activities, including communications, public relations,
business development, application developer support and product marketing.
From 1987 to August 1991, he served as a product manager and as a director of
marketing at SGI. Mr. Bagshaw holds B.S. and M.S. degrees in Mechanical
Engineering from Stanford University and an M.B.A. degree from the Stanford
University Graduate School of Business.
Leilani T. Gayles has served as Vice President, Human Resources of the
Company since she joined the Company in October 1997. From October 1995 until
October 1997, she served as a human resources consultant
29
<PAGE>
to a variety of companies. From February 1985 until June 1995, she held
various management positions, including Vice President, Human Resources, at
Silicon Graphics Computer Systems, a worldwide manufacturer of computer
workstations. Previously, Ms. Gayles was employed by Hewlett-Packard Company,
a manufacturer of computing and other electronic products. Ms. Gayles holds a
B.S. degree in Organization Behavior from the University of San Francisco.
Dean A. Gilbert has served as Senior Vice President and General Manager,
@Home Group of the Company since November 1996 and served as Senior Vice
President, Marketing and Sales of the Company from February 1996 to November
1996. From September 1994 to February 1996, he served as President and Chief
Executive Officer of Positive Communications, Inc., a provider of paging
products and services. From 1991 to September 1994, Mr. Gilbert served as
Executive Vice President, Group Operations and from 1989 to 1991 as Senior
Vice President, Marketing, Programming and Business Development at KBLCOM,
Incorporated, a cable television provider. He holds B.A. and M.A. degrees in
Telecommunications from Michigan State University.
Kenneth A. Goldman has served as Senior Vice President and Chief Financial
Officer of the Company since he joined the Company in July 1996. From July
1992 to July 1996, he was Senior Vice President and Chief Financial Officer of
Sybase, Inc., a database software and services company. From 1989 to
July 1992, Mr. Goldman was Vice President of Finance and Administration and
Chief Financial Officer at Cypress Semiconductor Corporation. From 1983 to
1989, he was Vice President and Chief Financial Officer of VLSI Technology,
Inc. Mr. Goldman serves on the board of directors of Global Village Inc. He
holds a B.S. degree in Electrical Engineering from Cornell University and an
M.B.A. degree from the Harvard University Graduate School of Business.
Adam Grosser has served as Vice President, Product Development of the
Company since he joined the Company in February 1997. Prior to that time, Mr.
Grosser was the President and Chief Executive Officer of Catapult
Entertainment, Inc., a provider of networking services for personal computers
and console video games that he co-founded in April 1994 and sold in November
1996. From August 1992 to April 1994, Mr. Grosser was the Senior Vice
President of New Media at Sony Pictures. From August 1990 to August 1992, he
was the General Manager of the New Media Group at LucasArts Entertainment. Mr.
Grosser holds B.A., M.A. and M.B.A. degrees from Stanford University.
Donald P. Hutchison has served as Senior Vice President and General Manager
of the Company's @Work Group since he joined the Company in February 1997.
Prior to that time, he served as Senior Vice President, Strategic Partnerships
from March 1996 to November 1996, Senior Vice President, Sales from August
1995 to March 1996 and Vice President, Sales and Marketing from May 1994 to
August 1995 of Netcom On-Line Communications Services, Inc., an Internet
access service provider. From 1989 to May 1994, Mr. Hutchison was Director of
Sales and Marketing at TAU Corporation, a digital video imaging company. From
1987 to 1989, he was Director of Sales and Business Planning for Pixar
Animation Studios, and, prior to that time, he held various sales and
management positions with Prime Computer and Data General Corporation. Mr.
Hutchison holds a B.A. in Business Economics from the University of California
at Santa Barbara and an M.B.A. degree from Loyola Marymount University.
Milo S. Medin has served as Senior Vice President and Chief Technology
Officer of the Company since March 1998. Prior to March, Mr. Medin served as
the Company's Vice President, Networks from the time he joined the Company as
its founder in June 1995. From 1985 to June 1995, he was employed at the NASA
Ames Research Center ("NASA Ames"), where he was responsible for a variety of
wide area networking projects, including the use of Internet technology to
interconnect NASA facilities and researchers at over 200 sites in
16 countries. In 1989, Mr. Medin developed the architecture for the first
Internet interconnect at NASA Ames, linking the major government backbones
together. He also managed the National Research and Education Network project
at NASA Ames, which, in concert with the United States Department of Energy,
deployed the first non-experimental 155 Mbps Internet backbone using switched
ATM services to interconnect supercomputing and data archive facilities across
the United States. Prior to joining NASA, he was employed by Science
Applications Inc. as a programmer for defense program activities at the
Lawrence Livermore National
30
<PAGE>
Laboratory and at the Los Alamos National Laboratory. In addition, Mr. Medin
has been active in the development of Internet routing protocols and
standards, primarily in the Internet Engineering Task Force, the leading
Internet development and standards organization, for more than 10 years. He
studied Computer Science at the University of California at Berkeley.
John L. O'Farrell has served as Senior Vice President, International of the
Company since he joined the Company in April 1997. From August 1995 to April
1997, he was President of U S WEST Interactive Services, Inc., an Internet
content development company. From May 1994 to August 1995, he was Vice
President, Corporate Strategy of U S WEST, Inc., a telephone and cable network
operator, and, from March 1992 to May 1994, he was Executive Director,
Corporate Strategy of U S WEST, Inc. Before joining U S WEST, Inc., he held
general management, marketing and consulting positions in the United States
and Europe with Telecom Ireland (Ireland), Booz, Allen & Hamilton (U.S.), the
Commission of European Communities (Luxembourg), Digital Equipment Corporation
and Siemens AG (both Germany). Mr. O'Farrell holds a B.E.E. degree from
University College Dublin, Ireland and an M.B.A. degree from the Stanford
University Graduate School of Business.
David G. Pine has served as Vice President and General Counsel of the
Company since he joined the Company in April 1996 and as secretary of the
Company since July 1996. From July 1990 to March 1996, he served as Vice
President, General Counsel and Secretary for Radius Inc., a manufacturer of
Macintosh computer peripherals. Before that, Mr. Pine was in private practice
with Fenwick & West LLP. Mr. Pine holds an A.B. degree in Government from
Dartmouth College and a J.D. degree from the University of Michigan
Law School.
Robert E. Tomasi, Jr. has served as the Company's Senior Vice President,
Operations since he joined the Company in November 1997. From November 1996 to
November 1997, he served as Chief Operating Officer of Best Internet
Communications, Inc., an Internet services organization specializing in Web
hosting. From November 1994 to November 1996, Mr. Tomasi served as Vice
President Operations of Netcom. Prior to that, Mr. Tomasi spent sixteen years
in various management positions at British Telecommunications ("BT"), a
telecommunications provider. As Vice President of Operations for BT, he
directed the domestic and international expansion of Tymnet Data Network, and
had responsibility for global operations, customer service and technical
support. He also served as General Manager of BT's Custom Data Networks
business in London, England. Mr. Tomasi holds a B.S. degree in Electrical
Engineering, Computer Systems from the New Jersey Institute of Technology.
William R. Hearst III has been a director of the Company since August 1995
and has served as Vice Chairman of the Board of Directors since July 1996. He
has been a general partner of Kleiner Perkins Caufield & Byers ("KPCB"), a
venture capital firm, since January 1995. From May 1995 to July 1996, he was
the founding Chief Executive Officer of the Company. Before joining KPCB, Mr.
Hearst was editor and publisher of the San Francisco Examiner for ten years.
He is a Fellow of the American Association for the Advancement of Science and
Technology and a Trustee of the Carnegie Institute in Washington, D.C. and the
California Academy of Sciences. Mr. Hearst serves on the board of directors of
Preview Travel, Inc. and Hearst Argyle Television, Inc. Mr. Hearst holds an
A.B. degree in Mathematics from Harvard University.
James L. Barksdale has been a director of the Company since August 1995. He
has been President and Chief Executive Officer of Netscape, an Internet
software company, since January 1995. He has served as a director of Netscape
since October 1994. From January 1992 to January 1995, Mr. Barksdale served as
President and Chief Operating Officer, and, as of September 1994, the Chief
Executive Officer, of AT&T Wireless Services (formerly, McCaw Cellular
Communications, Inc.), a cellular telecommunications company. From April 1983
to January 1992, he served as Executive Vice President and Chief Operating
Officer of Federal Express Corporation. From 1979 to 1983, Mr. Barksdale
served as Chief Information Officer of Federal Express Corporation. He also
held various management positions, including Chief Information Officer, with
Cook Industries, Inc., during the mid-1970s and was employed by International
Business Machines Corporation from
31
<PAGE>
1965 to 1972. Mr. Barksdale serves on the boards of directors of 3Com
Corporation, Robert Mondavi Corp. and Network Computer, Inc. He holds a B.S.
degree in Business Administration from the University of Mississippi.
Joseph W. Cece has been a director of the Company since May 1998. He has
been Senior Vice President, Strategic Planning of Cablevision since February
1996. From January 1994 to February 1996, he served as President and Chief
Operating Officer of Cablevision Lightpath, Inc., and from September 1993 to
January 1994, he served as Vice President, New Business of Cablevision. From
October 1995 to August 1993, Mr. Cece served as President and Publisher of
T.V. Guide.
L. John Doerr has been a director of the Company since August 1995. He has
been a general partner of KPCB since September 1980. Prior to joining KPCB,
Mr. Doerr was employed by Intel Corporation for five years. He serves on the
boards of directors of Amazon.com, Inc., Intuit Inc., Macromedia, Inc.,
Netscape, Platinum Software Corporation, Shiva Corporation and Sun
Microsystems, Inc. Mr. Doerr holds B.S.E.E. and M.E.E. degrees from Rice
University and an M.B.A. degree from the Harvard University Graduate School of
Business.
Leo J. Hindery, Jr. has been a director of the Company since October 1997.
He has served as the President and Chief Operating Officer of TCI, a cable
systems company, since March 1997. Mr. Hindery has served as a director of TCI
since May 1997 and has served as Chairman of the Board of TCI Music, Inc.
since January 1997. He has served as President and Chief Executive Officer of
TCI Communications, Inc. ("TCIC") since March 1997 and has served as President
and Chief Executive Officer of TCI Pacific Communications, Inc. ("TCI
Pacific") since September 1997. Mr. Hindery has served as a director of TCIC
since March 1997 and has served as a director of TCI Pacific since September
1997. In addition, he is President, Chief Executive Officer and/or a director
of many of TCI's subsidiaries. Mr. Hindery was previously founder, Managing
General Partner and Chief Executive Officer of InterMedia Partners, a cable TV
operator, and its affiliated entities from 1988 until March 1997. He was a
director of DMX, Inc. from May 1996 to July 1997. Mr. Hindery also is a
director of Tele-Communications International, Inc., United Video Satellite
Group, Inc. TCI Satellite Entertainment, Inc., Cablevision Systems Corporation
and Lenfest Communications, Inc.
John C. Malone has been a director of the Company since April 1997. He has
served as Chairman of the Board of TCI since November 1996 and has served as
Chief Executive Officer of TCI since August 1994. Dr. Malone was also
President of TCI from August 1994 through March 1997. He served as Chief
Executive Officer of a predecessor of TCI from March 1992 to August 1994 and
as President of such predecessor company from 1973 to August 1994. Dr. Malone
has been a director of TCI and its predecessors since 1973. Dr. Malone also
serves on the boards of directors of Tele-Communications International, Inc.,
TCI Satellite Entertainment, Inc., BET Holdings, Inc., Cablevision Systems
Corporation, Lenfest Communications, Inc., TCI Pacific and the Bank of New
York Company, Inc. He holds a B.S. degree in Electrical Engineering and
Economics from Yale University and a M.S. degree in Industrial Management and
a Ph.D. in Operations Research from Johns Hopkins University.
Bruce W. Ravenel has been a director of the Company since August 1995. Since
March 1998, he has served as Executive Vice President-Interactive Ventures of
TCIC. From January 1996 to March 1998, he has served as President and Chief
Executive Officer of TCI.NET, Inc. and Senior Vice President of TCIC, both
wholly owned subsidiaries of TCI, where he has been responsible for all
Internet-related business activities of TCI. From March 1994 to January 1996,
Mr. Ravenel was Senior Vice President and Chief Operating Officer of TCI
Technology Ventures, Inc., a division of TCI. From March 1992 to March 1994,
he served as Vice President of TCI Technology, Inc. Mr. Ravenel holds a B.A.
degree in Economics from the University of Colorado.
Brian L. Roberts has been a director of the Company since August 1996. He
has served as President of Comcast since February 1990 and as a director of
Comcast since 1987. Prior to becoming President, Mr. Roberts spent eight years
in various management positions with Comcast. Mr. Roberts also serves as Vice
President and a director of Sural Corporation, a privately-held investment
company, and as a director of Comcast UK Cable Partners Limited. Mr. Roberts
holds a B.S. degree in Finance from the Wharton School of Finance of the
University of Pennsylvania.
32
<PAGE>
Larry E. Romrell has been a director of the Company since August 1995. He
has served as Executive Vice President of TCI since January 1994 and Executive
Vice President and Chief Executive Officer of TCI Business Alliance and
President of TCI Technology Ventures, Inc. from September 1994 to October
1997. From 1991 to October 1994, Mr. Romrell was Senior Vice President of
TCIC. He serves on the boards of directors of General Communication, Inc., TCG
and United Video Satellite Group, Inc.
James R. Shaw has been a director of the Company since July 1998. He has
served as President and Chief Operating Officer of Shaw since November 1995,
and from 1982 to November 1995, he held other management positions with Shaw.
Mr. Shaw is the Chairman of Vision.com, a strategic alliance of Canadian cable
television companies, and is a Director of CableLabs, a North American cable
television research organization.
David M. Woodrow has been a director of the Company since August 1996. He
has served as Senior Vice President of Broadband Services for Cox since April
1994. Mr. Woodrow joined Cox in 1982 as Director, Business Development, and
was promoted to Western Regional Manager in 1984, to Vice President and
General Manager of Cox Cable Santa Barbara, Inc. in 1985 and to Senior Vice
President, Operations in 1989. Prior to joining Cox, he was employed by the
Technology Components Group of Exxon Enterprises from 1976 to 1982 and by
Pitney Bowes, Inc. from 1970 to 1976. Mr. Woodrow serves on the board of
directors of TCG. He holds B.S. and M.S. degrees in Mechanical Engineering
from Purdue University and an M.B.A. degree from the University of
Connecticut.
33
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information known to the Company with
respect to the beneficial ownership of the Company's Common Stock as of June
30, 1998 and as adjusted to reflect the sale of the 2,500,000 shares of Series
A Common Stock offered hereby by: (i) each person who is known by the Company
to own beneficially more than 5% of the Company's Common Stock; (ii) each
director of the Company; (iii) the Company's Chief Executive Officer and each
of the Company's five other most highly compensated executive officers during
1997; and (iv) all directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
PERCENTAGE OF PERCENTAGE OF
COMMON STOCK VOTE OF ALL
NUMBER OF SHARES BENEFICIALLY BENEFICIALLY SERIES OF COMMON
OWNED(1) OWNED STOCK
------------------------------- ----------------- -----------------
AFTER AFTER
BEFORE OFFERING BEFORE OFFERING
NAME OF BENEFICIAL OWNER SERIES A SERIES B SERIES K OFFERING (2) OFFERING (2)
- ------------------------ ---------- ---------- --------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
TCI(3).................. 31,060,000 15,400,000 -- 39.1% 38.3% 71.9% 71.2%
Comcast(4).............. 14,557,300 -- -- 12.2 12.0 5.7 5.6
Cox(5).................. 14,557,300 -- -- 12.2 12.0 5.7 5.6
Cablevision(6).......... 10,946,936 -- -- 8.4 8.3 4.1 4.0
KPCB(7)................. -- -- 6,438,830 5.4 5.3 2.5 2.5
Thomas A. Jermoluk(8)... 2,801,000 -- 1,000,000 3.2 3.1 1.5 1.5
Rogers(9)............... 1,759,120 -- -- 1.5 1.5 * *
Shaw(10)................ 1,620,120 -- -- 1.4 1.3 * *
William R. Hearst
III(11)................ 585,499 -- -- * * * *
Milo S. Medin(12)....... 563,000 -- -- * * * *
Kenneth A. Goldman(13).. 421,000 -- -- * * * *
Donald P. Hutchison(14). 348,000 -- -- * * * *
L. John Doerr(15)....... 345,481 -- -- * * * *
David P. Bagshaw(16).... 341,000 -- -- * * * *
Dean A. Gilbert(17)..... 320,524 -- -- * * * *
James L. Barksdale(18).. 84,786 -- -- * * * *
John C. Malone(19)...... 23,000 -- -- * * * *
David M. Woodrow(20).... 9,750 -- -- * * * *
Bruce W. Ravenel(21).... 5,000 -- -- * * * *
Brian L. Roberts(22).... 2,500 -- -- * * * *
Joseph W. Cece(23)...... -- -- -- -- -- -- --
Leo J. Hindery(24)...... -- -- -- -- -- -- --
Larry E. Romrell(25).... -- -- -- -- -- -- --
James R. Shaw(26)....... -- -- -- -- -- -- --
All directors and
executive officers as a
group (22 persons)(27). 6,575,254 -- 1,000,000 6.4% 6.2% 2.9% 2.9%
</TABLE>
- --------
* Less than 1% of the Company's outstanding Common Stock.
(1) Percentage ownership is based on 118,898,344 shares of Common Stock
outstanding as of June 30, 1998, and 121,398,344 shares outstanding after
the offering. All shares subject to options and warrants exercisable
within 60 days after June 30, 1998 are deemed to be beneficially owned by
the person or entity holding such options or warrants and to be
outstanding solely for calculating such person's or entity's percentage
ownership. Unless otherwise indicated below, the persons and entities
named in the table have sole voting and sole investment power with
respect to all shares beneficially owned, subject to community property
laws where applicable.
(2) Assumes the Underwriters' over-allotment option to purchase up to 375,000
shares of Series A Common Stock is not exercised.
(3) Represents shares of Series A Common Stock and shares of Series B Common
Stock held by TCI Internet Holdings, Inc., a wholly owned subsidiary of
TCI. TCI disclaims beneficial ownership of all shares held by Dr. Malone
and Mr. Ravenel. The address of TCI is 5619 DTC Parkway, Englewood,
Colorado 80111.
(4) Represents shares of Series A Common Stock held by Comcast PC
Investments, Inc., a wholly owned subsidiary of Comcast. Comcast
disclaims beneficial ownership of all shares held by Mr. Roberts. The
address of Comcast is 1500 Market Street, 35th Floor, Philadelphia,
Pennsylvania 19102.
(5) Represents shares of Series A Common Stock held by Cox@Home, Inc., a
wholly owned subsidiary of Cox. Cox disclaims beneficial ownership of all
shares held by Mr. Woodrow. The address of Cox is 1400 Lake Hearn Drive,
Atlanta, Georgia 30319.
(6) Represents warrants to purchase 10,946,936 shares of Series A Common
Stock. Of these shares, 10,231,298 are immediately exercisable and the
balance will become exercisable as and to the extent certain Connecticut
cable systems are transferred to Cablevision from TCI and its controlled
affiliates. The address of Cablevision is One Media Crossways, Woodbury,
New York 11797.
34
<PAGE>
(7) Represents 6,116,890 shares of Series K Common Stock held by Kleiner
Perkins Caufield & Byers VII ("KPCB VII") and 321,940 shares of Series K
Common Stock held by KPCB Information Sciences Zaibatsu Fund II ("KPCB
Info."). KPCB VII and KPCB Info. disclaim beneficial ownership of all
shares held by Messrs. Doerr and Hearst outside of these funds. The
address of KPCB VII and KPCB Info. is Kleiner Perkins Caufield & Byers,
2750 Sand Hill Road, Menlo Park, California 94025.
(8) Mr. Jermoluk is the Company's Chairman of the Board, President and Chief
Executive Officer. Of these shares, 1,562,500 were subject to repurchase
at June 30, 1998.
(9) Represents 1,420,000 shares of Series A Common Stock and currently
exercisable warrants to purchase 339,120 shares of Series A Common Stock
held by Rogers, a wholly owned subsidiary of Rogers Communications, Inc.
The address of Rogers is Suite 2400, Scotia Plaza, 40 King Street West,
Toronto, Ontario, Canada M5H 3Y2.
(10) Represents 1,100,000 shares of Series A Common Stock and currently
exercisable warrants to purchase 350,000 shares of Series A Common Stock
held by Shaw, a wholly owned subsidiary of Shaw Communications, Inc. The
address of Shaw is Suite 900, 630 3rd Avenue SW, Calgary, Alberta, Canada
T2P4L4.
(11) Mr. Hearst, the Company's Vice Chairman of the Board, is a general
partner of KPCB, which is the general partner of the general partner of
KPCB VII and KPCB Info. Mr. Hearst disclaims beneficial ownership of the
shares held by KPCB VII and KPCB Info. The address of Mr. Hearst is
Kleiner Perkins Caufield & Byers, 2750 Sand Hill Road, Menlo Park,
California 94025.
(12) Mr. Medin is the Company's Senior Vice President and Chief Technology
Officer. Of these shares, 149,040 were subject to repurchase at June 30,
1998.
(13) Mr. Goldman is the Company's Senior Vice President and Chief Financial
Officer. Of those shares, 233,751 were subject to repurchase at June 30,
1998.
(14) Mr. Hutchison is the Company's Senior Vice President and General Manager,
@Work Group. Of these shares 266,667 were subject to repurchase at June
30, 1998, and 25,000 are subject to options that are exercisable on
August 30, 1998 but, if exercised, 18,750 are subject to repurchase.
(15) Mr. Doerr, a director of the Company, is a general partner of KPCB, which
is the general partner of the general partner of KPCB VII and KPCB Info.
Of the shares of Series A Common Stock reported by Mr. Doerr, 133,763 are
held in trusts for which Mr. Doerr disclaims beneficial ownership except
to the extent of any indirect pecuniary interest therein. Mr. Doerr
disclaims beneficial ownership of the shares held by KPCB VII and KPCB
Info. The address of Mr. Doerr is Kleiner Perkins Caufield & Byers, 2750
Sand Hill Road, Menlo Park, California 94025.
(16) Mr. Bagshaw is the Company's Senior Vice President and General Manager,
@Media Group. Of these shares 243,450 were subject to repurchase at June
30, 1998, and 25,000 are subject to options that are exercisable on
August 30, 1998 but, if exercised, 18,750 are subject to repurchase.
(17) Mr. Gilbert is the Company's Senior Vice President and General Manager,
@Home Group. Of these shares, 182,864 were subject to repurchase at June
30, 1998, and 50,000 are subject to options that are exercisable on
August 30, 1998 but, if exercised, 37,500 are subject to repurchase.
(18) Mr. Barksdale, a director of the Company, is the President and Chief
Executive Officer of Netscape. The address of Mr. Barksdale is 487 East
Middlefield, Mountain View, California 94043.
(19) Mr. Malone, a director of the Company, is Chairman and Chief Executive
Officer of TCI. Mr. Malone disclaims beneficial ownership of the shares
held by TCI. The address of Mr. Malone is 5619 DTC Parkway, Englewood,
Colorado 90111.
(20) Mr. Woodrow is the Senior Vice President of Broadband Services of Cox and
serves as its designee as a Series B Director of the Company. Mr. Woodrow
disclaims beneficial ownership of the shares held by Cox. The address of
Mr. Woodrow is 1400 Lake Hearn Drive, Atlanta, Georgia 30319.
(21) Mr. Ravenel is Executive Vice President Interactive Ventures of TCIC and
serves as TCI's designee as a Series B Director of the Company. Mr.
Ravenel disclaims beneficial ownership of the shares held by TCI. The
address of Mr. Ravenel is 5619 DTC Parkway, Englewood, Colorado 80111.
(22) Mr. Roberts is the President of Comcast and serves as its designee as a
Series B Director of the Company. Mr. Roberts disclaims beneficial
ownership of the shares held by Comcast. The address of Mr. Roberts is
Comcast, 1500 Market Street, 35th Floor, Philadelphia, Pennsylvania
19102.
(23) Mr. Cece, a director of the Company, is Senior Vice President, Strategic
Planning of Cablevision. Mr. Cece disclaims beneficial ownership of the
shares held by Cablevision. The address of Mr. Cece is One Media
Crossways, Woodbury, New York 11797.
(24) Mr. Hindery is President and Chief Operating Officer of TCI and serves as
its designee as a Series B Director of the Company. Mr. Hindery disclaims
beneficial ownership of the shares held by TCI. The address of Mr.
Hindery is 5619 DTC Parkway, Englewood, Colorado 80111.
(25) Mr. Romrell is Executive Vice President of TCI and serves as its designee
as a Series B Director of the Company. Mr. Romrell disclaims beneficial
ownership of the shares held by TCI. The address of Mr. Romrell is 5619
DTC Parkway, Englewood, Colorado 80111.
(26) Mr. Shaw, a director of the Company, is President and Chief Operating
Officer of Shaw. Mr. Shaw disclaims beneficial ownership of the shares
held by Shaw. The address of Mr. Shaw is Suite 900, 630 3rd Avenue SW,
Calgary, Alberta, Canada T2P4L4.
(27) Includes all of the shares shown in the table and an additional 674,001
shares of Series A Common Stock held by four other executive officers. Of
these shares 459,618 were subject to repurchase at June 30, 1998, and
55,000 are subject to options that are exercisable at August 30, 1998,
but, if exercised, 41,250 are subject to repurchase.
35
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in a purchase agreement (the
"Purchase Agreement"), the Company has agreed to sell to each of the
Underwriters named below, and each of the Underwriters, for whom Merrill
Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), Morgan Stanley &
Co. Incorporated, Goldman, Sachs & Co., BT Alex. Brown Incorporated and
Hambrecht & Quist LLC are acting as representatives (the "Representatives"),
has severally agreed to purchase from the Company, the respective numbers of
shares of Series A Common Stock set forth opposite its name below. In the
Purchase Agreement, the several Underwriters have agreed, subject to the terms
and conditions set forth therein, to purchase all of the shares of Series A
Common Stock offered hereby if any of such shares are purchased. In the event
of default by an Underwriter, the Purchase Agreement provides that, in certain
circumstances, purchase commitments of the nondefaulting Underwriters may be
increased or the Purchase Agreement may be terminated.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.................................................
Morgan Stanley & Co. Incorporated.................................
Goldman, Sachs & Co. .............................................
BT Alex. Brown Incorporated.......................................
Hambrecht & Quist LLC.............................................
---------
Total........................................................ 2,500,000
=========
</TABLE>
The Representatives have advised the Company that the Underwriters propose
initially to offer the shares of Series A Common Stock to the public at the
public offering price set forth on the cover page of this Prospectus, and to
certain dealers at such price less a concession not in excess of $ per
share. The Underwriters may allow, and such dealers may reallow, a discount
not in excess of $ per share to certain other dealers. After the public
offering, the public offering price, concession and discount may be changed.
The Company has granted to the Underwriters an option exercisable for 30
days after the date of this Prospectus, to purchase up to an aggregate of
375,000 additional shares of Series A Common Stock at the public offering
price set forth on the cover page of this Prospectus, less the underwriting
discount. The Underwriters may exercise such option only to cover over-
allotments, if any, made in connection with the sale of Series A Common Stock
offered hereby. To the extent that the Underwriters exercise this option, each
Underwriter will have a firm commitment, subject to certain conditions, to
purchase approximately the same percentage thereof which the number of shares
of Series A Common Stock to be purchased by it shown in the above table is of
the 2,500,000 shares of Series A Common Stock initially offered hereby. If
purchased, the Underwriters will offer such additional shares on the same
terms as those on which the 2,500,000 shares are being offered.
Until the distribution of the Series A Common Stock is completed, the rules
of the Commission may limit the ability of the Underwriters and certain
selling group members (if any) to bid for and purchase the Series A Common
Stock. As an exception to these rules, the Representatives are permitted to
engage in certain transactions that stabilize the price of the Series A Common
Stock. Such transactions consist of bids or purchases for the purpose of
pegging, fixing or maintaining the price of the Series A Common Stock.
If the Underwriters create a short position in the Series A Common Stock in
connection with the offering (i.e., if they sell a greater number of shares of
Series A Common Stock than is set forth on the cover page of this Prospectus),
the Representatives may reduce that short position by purchasing shares of
Series A Common Stock in the open market. The Representatives may also elect
to reduce any short position by exercising all or part of the over-allotment
option described above.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher
than it might be in the absence of such purchases.
36
<PAGE>
Neither the Company nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the
transactions described above may have on the price of the Series A Common
Stock. In addition, neither the Company nor any of the Underwriters makes any
representation that the Representatives will engage in such transactions or
that such transactions, once commenced, will not be discontinued without
notice.
In connection with this offering, the Underwriters or their respective
affiliates and selling group members (if any) who are qualified market makers
on Nasdaq may engage in "passive market making" in the Series A Common Stock
on the Nasdaq National Market in accordance with Rule 103 of Regulation M
under the Exchange Act. Rule 103 permits, upon the satisfaction of certain
conditions, underwriters and selling group members participating in a
distribution that are also Nasdaq market markers in the security being
distributed (or a related security) to engage in limited market making
transactions during the period when Regulation M under the Exchange Act would
otherwise prohibit such activity. Rule 103 prohibits underwriters and selling
group members engaged in passive market making generally from entering a bid
or effecting a purchase at a price that exceeds the highest bid for those
securities displayed on the Nasdaq National Market by a market maker that is
not participating in the distribution. Under Rule 103, each underwriter or
selling group member engaged in passive market making is subject to a daily
net purchase limitation equal to 30% of such entity's average daily trading
volume during the two full consecutive calendar months immediately preceding
the date of the filing of the registration statement under the Securities Act
pertaining to the security to be distributed (or such related security).
The Company and the directors and executive officers of the Company have
agreed not to offer, sell, contract to sell or otherwise dispose of, directly
or indirectly, or file or cause to be filed a registration statement under the
Securities Act with respect to, any shares of Series A Common Stock,
securities convertible into, exchangeable for or repayable with such shares or
rights or warrants to acquire such shares, until October 19, 1998 without the
prior written consent of Merrill Lynch, except that the Company may, without
such consent, grant options pursuant to its benefit plans or issue shares of
Series A Common Stock upon exercise of options currently outstanding, or
issue, or file registration statements with respect to, shares of Series A
Common Stock in connection with acquisitions.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including certain liabilities under the Securities Act, or to
contribute to payments the Underwriters may be required to make in respect
thereof.
LEGAL MATTERS
The validity of the shares of Series A Common Stock offered hereby will be
passed upon for the Company by Fenwick & West LLP, Palo Alto, California.
Fenwick & West LLP holds an option to purchase 18,750 shares of Series A
Common Stock of the Company. Certain legal matters will be passed upon for the
Underwriters by Wilson Sonsini Goodrich & Rosati, Professional Corporation,
Palo Alto, California.
EXPERTS
The consolidated financial statements of At Home Corporation appearing in At
Home Corporation's Annual Report (Form 10-K) for the year ended December 31,
1997 have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon included therein and incorporated herein by
reference. Such consolidated financial statements are incorporated herein by
reference in reliance upon such report given upon the authority of such firm
as experts in accounting and auditing.
37
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange Act
and in accordance therewith files reports, proxy and information statements,
and other information with the Commission. Such reports, proxy and information
statements, and other information filed by the Company can be inspected and
copied at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Washington, D.C., as well as the regional offices of the
Commission located at Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois, and Seven World Trade Center, Suite 1300, New York, New
York. Copies of such materials can be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. The Company's Series A Common Stock is listed on the Nasdaq
National Market. The Commission maintains a World Wide Web site that contains
reports, proxy and information statements, and other information filed through
the Commission's Electronic Data Gathering, Analysis and Retrieval System.
This Web site can be accessed at http://www.sec.gov.
The Company has filed with the Commission a Registration Statement on Form
S-3 (together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act with respect to the Series A Common Stock
offered hereby. This Prospectus does not contain all of the information set
forth in the Registration Statement and the exhibits thereto, certain parts of
which are omitted in accordance with the rules and regulations of the
Commission. For further information with respect to the Company and such
Series A Common Stock, reference is made to the Registration Statement and the
exhibits thereto. Statements contained in this Prospectus as to the contents
of any contract or any other document referred to are not necessarily
complete, and, in each instance, reference is made to the copy of such
contract or document filed as an exhibit to the Registration Statement, each
such statement being qualified in all respects by such reference. Copies of
the Registration Statement, including all exhibits thereto, may be inspected
without charge at the Commission's principal office in Washington, D.C., and
copies of all or any part thereof may be obtained from such office after
payment of fees prescribed by the Commission.
38
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING
COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY, OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO BUY THE COMMON STOCK IN ANY JURISDICTION
WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF
THE COMPANY SINCE THE DATE HEREOF.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Incorporation of Certain Documents by Reference............................ 2
Prospectus Summary......................................................... 3
Risk Factors............................................................... 6
Use of Proceeds............................................................ 16
Dividend Policy............................................................ 16
Price Range of Series A Common Stock....................................... 16
Business................................................................... 17
Management................................................................. 29
Principal Stockholders..................................................... 34
Underwriting............................................................... 36
Legal Matters.............................................................. 37
Experts.................................................................... 37
Available Information...................................................... 38
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2,500,000 SHARES
[LOGO OF @HOME NETWORK]
SERIES A COMMON STOCK
---------------
PROSPECTUS
---------------
MERRILL LYNCH & CO.
MORGAN STANLEY DEAN WITTER
---------------
GOLDMAN, SACHS & CO.
BT ALEX. BROWN
HAMBRECHT & QUIST
, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The expenses to be paid by the Registrant in connection with this offering
are as follows. All amounts other than the SEC registration fee, NASD filing
fee and Nasdaq National Market additional listing fee are estimates.
<TABLE>
<S> <C>
SEC Registration Fee............................................ $ 38,193
NASD Filing Fee................................................. 14,408
Nasdaq National Market Additional Listing Fee................... 17,500
Printing........................................................ 130,000
Legal Fees and Expenses......................................... 125,000
Accounting Fees and Expenses.................................... 75,000
Road Show Expenses.............................................. 50,000
Blue Sky Fees and Expenses and NASD Expenses.................... 10,000
Transfer Agent and Registrar Fees............................... 5,000
Miscellaneous................................................... 34,899
--------
Total......................................................... $500,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
As permitted by the Delaware General Corporation Law, the Registrant's
Certificate of Incorporation includes a provision that eliminates the personal
liability of its directors to the Registrant or its stockholders for monetary
damages for breach of fiduciary duty as a director, except for liability (i)
for any breach of the director's duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law, (iii) under Section 174
of the Delaware General Corporation Law or (iv) for any transaction from which
the director derived an improper personal benefit. As permitted by Section 145
of the Delaware General Corporation Law, Registrant's Certificate of
Incorporation further provides (i) for mandatory indemnification, to the
fullest extent permitted by applicable law, for any person who is or was a
director or officer, or is or was serving at the request of the Company as a
director, officer, employee or agent of another corporation or of a
partnership, joint venture, trust, enterprise or nonprofit entity, including
service with respect to employee benefit plans, against all liability and loss
suffered and expenses (including attorneys' fees) reasonably incurred by such
person, (ii) that the Registrant's obligation to indemnify any person who was
or is serving at the Company's request as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust, enterprise or
nonprofit entity must be reduced by any amount such person may collect as
indemnification from such other corporation, partnership, joint venture,
trust, enterprise or nonprofit entity, (iii) that the Registrant must advance
to all indemnified parties the expenses (including attorneys' fees) incurred
in defending any proceeding provided that indemnified parties (if they are
directors or officers) must provide Registrant an undertaking to repay such
advances if indemnification is determined to be unavailable, (iv) that the
rights conferred in the Certificate of Incorporation are not exclusive and (v)
that Registrant may not retroactively amend the Certification of Incorporation
provisions relating to indemnity. Registrant has also entered into
Indemnification Agreements with each of its directors and executive officers.
Reference is also made to Section 6 of the Purchase Agreement, which provides
for the indemnification of officers, directors and controlling persons of the
Registrant against certain liabilities.
The indemnification provision in the Company's Certificate of Incorporation
and the Indemnification Agreements entered into between the Registrant and
each of its directors and executive officers may be sufficiently broad to
permit indemnification of the Registrant's directors and officers for
liabilities arising under the Securities Act.
The Registrant has obtained directors' and officers' liability insurance.
II-1
<PAGE>
Reference is made to the following documents filed or incorporated by
reference as exhibits to this Registration Statement regarding relevant
indemnification provisions described above and elsewhere herein:
<TABLE>
<CAPTION>
DOCUMENT EXHIBIT NUMBER
-------- --------------
<S> <C>
Purchase Agreement (draft dated July 27, 1998)............... 1.01
Third Amended and Restated Certificate of Incorporation of
Registrant.................................................. 3.01(1)
Form of Indemnification Agreement............................ 10.09(1)
</TABLE>
- --------
(1) Incorporated by reference to the exhibit of the same number filed with
Registrant's Registration Statement on Form S-1, File No. 333-27323.
ITEM 16. EXHIBITS.
(a) The following exhibits are filed herewith:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
------- -------------
<C> <S>
1.01 Purchase Agreement (draft dated July 27, 1998).
4.01 Third Amended and Restated Registration Rights Agreement, dated April
11, 1997, among Registrant and the parties indicated therein.(1)
4.02 Letter Agreement relating to Tag-Along/Drag-Along Rights, dated April
11, 1997, among Registrant and the parties indicated therein.(1)
4.03 Canadian Purchase Letter Agreement dated April 11, 1997, among
Registrant and the parties indicated therein.(1)
4.04 Amended and Restated Stockholders' Agreement, dated August 1, 1996,
among Registrant and the parties indicated therein, as amended on May
15, 1997.(1)
4.05 Form of Certificate of Registrant's Series A Common Stock.(1)
5.01 Opinion of Fenwick & West LLP regarding legality of the securities
being registered.
23.01 Consent of Fenwick & West LLP (included in Exhibit 5.01).
23.02 Consent of Ernst & Young LLP, Independent Auditors.
24.01 Power of Attorney (see Page II-4 of the Registration Statement).
</TABLE>
- --------
(1) Incorporated by reference to the exhibit of the same number filed with
Registrant's Registration Statement on Form S-1, File No. 333-27323.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 15 above, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-2
<PAGE>
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) For purposes of determining any liability under the Securities Act,
each filing of the Registrant's annual report pursuant to section 13(a) or
section 15(d) of the Exchange Act (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Exchange Act that is incorporated by reference in the Registration
Statement) shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT CERTIFIES
THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE REDWOOD CITY, STATE OF CALIFORNIA, ON THE 23RD DAY OF JULY,
1998.
At Home Corporation
By: /s/ Thomas A. Jermoluk
-----------------------------
THOMAS A. JERMOLUK
CHAIRMAN, PRESIDENT AND CHIEF
EXECUTIVE OFFICER
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS that each individual whose signature
appears below constitutes and appoints Thomas A. Jermoluk, Kenneth A. Goldman
and David G. Pine, and each of them, his true and lawful attorneys-in-fact and
agents, with full power of substitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement, and to sign any
registration statement for the same offering covered by this Registration
Statement that is to be effective upon filing pursuant to Rule 462 promulgated
under the Securities Act, and all post-effective amendments thereto, and to
file the same, with all exhibits thereto and all documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said attorneys-
in-fact and agents or any of them, or his or their substitute or substitutes,
may lawfully do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THIS REGISTRATION
STATEMENT WAS SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATES INDICATED.
NAME TITLE DATE
PRINCIPAL EXECUTIVE OFFICER:
/s/ Thomas A. Jermoluk Chairman of the July 23, 1998
- ------------------------------------- Board, President,
THOMAS A. JERMOLUK Chief Executive
Officer
PRINCIPAL FINANCIAL OFFICER:
/s/ Kenneth A. Goldman Senior Vice July 23, 1998
- ------------------------------------- President and Chief
KENNETH A. GOLDMAN Financial Officer
PRINCIPAL ACCOUNTING OFFICER:
/s/ Robert A. Lerner Corporate Controller July 23, 1998
- -------------------------------------
ROBERT A. LERNER
II-4
<PAGE>
NAME TITLE DATE
DIRECTORS:
/s/ William R. Hearst III Vice Chairman July 23, 1998
- -------------------------------------
WILLIAM R. HEARST III
/s/ James L. Barksdale Director July 23, 1998
- -------------------------------------
JAMES L. BARKSDALE
/s/ Joseph W. Cece Director July 23, 1998
- -------------------------------------
JOSEPH W. CECE
Director
- -------------------------------------
L. JOHN DOERR
/s/ Leo J. Hindery, Jr. Director July 23, 1998
- -------------------------------------
LEO J. HINDERY, JR.
Director
- -------------------------------------
JOHN C. MALONE
Director
- -------------------------------------
BRUCE W. RAVENEL
Director
- -------------------------------------
BRIAN L. ROBERTS
/s/ Larry E. Romrell Director July 23, 1998
- -------------------------------------
LARRY E. ROMRELL
/s/ James R. Shaw Director July 23, 1998
- -------------------------------------
JAMES R. SHAW
/s/ David M. Woodrow Director July 23, 1998
- -------------------------------------
DAVID M. WOODROW
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
------- -------------
<C> <S>
1.01 Purchase Agreement (draft dated July 27, 1998).
4.01 Third Amended and Restated Registration Rights Agreement, dated April
11, 1997, among Registrant and the parties indicated therein.(1)
4.02 Letter Agreement relating to Tag-Along/Drag-Along Rights, dated April
11, 1997, among Registrant and the parties indicated therein.(1)
4.03 Canadian Purchase Letter Agreement dated April 11, 1997, among
Registrant and the parties indicated therein.(1)
4.04 Amended and Restated Stockholders' Agreement, dated August 1, 1996,
among Registrant and the parties indicated therein, as amended on May
15, 1997.(1)
4.05 Form of Certificate of Registrant's Series A Common Stock.(1)
5.01 Opinion of Fenwick & West LLP regarding legality of the securities
being registered.
23.01 Consent of Fenwick & West LLP (included in Exhibit 5.01).
23.02 Consent of Ernst & Young LLP, Independent Auditors.
24.01 Power of Attorney (see Page II-4 of the Registration Statement).
</TABLE>
- --------
(1) Incorporated by reference to the exhibit of the same number filed with
Registrant's Registration Statement on Form S-1, File No. 333-27323.
<PAGE>
Draft of 7/27/98
AT HOME CORPORATION
(a Delaware corporation)
2,500,000 Shares of Series A Common Stock
(Par Value $.01 Per Share)
PURCHASE AGREEMENT
------------------
August ___, 1998
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Morgan Stanley & Co. Incorporated
Goldman, Sachs & Co.
BT Alex. Brown Incorporated
Hambrecht & Quist LLC
as Representatives of the several Underwriters
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, New York 10281-1209
Ladies and Gentlemen:
At Home Corporation, a Delaware corporation (the "Company"), confirms its
respective agreements with Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner &
Smith Incorporated ("Merrill Lynch") and each of the other Underwriters named in
Schedule A hereto (collectively, the "Underwriters," which term shall also
include any underwriter substituted as hereinafter provided in Section 10
hereof), for whom Merrill Lynch, Morgan Stanley & Co. Incorporated, Goldman,
Sachs & Co., BT Alex. Brown Incorporated and Hambrecht & Quist LLC are acting as
representatives (in such capacity, the "Representatives"), with respect to (i)
the sale by the Company and the purchase by the Underwriters, acting severally
and not jointly, of the number of shares of Series A Common Stock, par value
$.01 per share, of the Company ("Common Stock") set forth in Schedule A hereto
and (ii) the grant by the Company to the Underwriters, acting severally and not
jointly, of the option described in Section 2(b) hereof to purchase all or any
part of 375,000 additional shares of Common Stock to cover over-allotments, if
any. The aforesaid 2,500,000 shares of Common Stock (the "Initial Securities")
to be purchased by the Underwriters and all or any part of the 375,000 shares of
Common Stock subject to the option
-1-
<PAGE>
described in Section 2(b) hereof (the "Option Securities") are hereinafter
called, collectively, the "Securities".
The Company understands that the Underwriters propose to make a public
offering of the Securities as soon as the Representatives deem advisable after
this Agreement has been executed and delivered.
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-3 (No. 333-_____) covering the
registration of the Securities under the Securities Act of 1933, as amended (the
"1933 Act"), including the related preliminary prospectus or prospectuses.
Promptly after execution and delivery of this Agreement, the Company will either
(i) prepare and file a prospectus in accordance with the provisions of Rule 430A
("Rule 430A") of the rules and regulations of the Commission under the 1933 Act
(the "1933 Act Regulations") and paragraph (b) of Rule 424 ("Rule 424(b)") of
the 1933 Act Regulations or (ii) if the Company has elected to rely upon Rule
434 ("Rule 434") of the 1933 Act Regulations, prepare and file a term sheet (a
"Term Sheet") in accordance with the provisions of Rule 434 and Rule 424(b).
The information included in such prospectus or in such Term Sheet, as the case
may be, that was omitted from such registration statement at the time it became
effective but that is deemed to be part of such registration statement at the
time it became effective (a) pursuant to paragraph (b) of Rule 430A is referred
to as "Rule 430A Information" or (b) pursuant to paragraph (d) of Rule 434 is
referred to as "Rule 434 Information." Each prospectus used before such
registration statement became effective, and any prospectus that omitted, as
applicable, the Rule 430A Information or the Rule 434 Information, that was used
after such effectiveness and prior to the execution and delivery of this
Agreement, is herein called a "preliminary prospectus." Such registration
statement, including the exhibits thereto, and the documents incorporated by
reference therein pursuant to Item 12 of Form S-3 under the 1933 Act, at the
time it became effective and including the Rule 430A Information or the Rule 434
Information, as applicable, is herein called the "Registration Statement." Any
registration statement filed pursuant to Rule 462(b) of the 1933 Act Regulations
is herein referred to as the "Rule 462(b) Registration Statement," and after
such filing the term "Registration Statement" shall include the Rule 462(b)
Registration Statement. The final prospectus, including the documents
incorporated by reference therein pursuant to Item 12 of Form S-3 under the 1933
Act, in the form first furnished to the Underwriters for use in connection with
the offering of the Securities is herein called the "Prospectus." If Rule 434 is
relied on, the term "Prospectus" shall refer to the preliminary prospectus dated
July _____, 1998 together with the Term Sheet and all references in this
Agreement to the date of the Prospectus shall mean the date of the Term Sheet.
For purposes of this Agreement, all references to the Registration Statement,
any preliminary prospectus, the Prospectus or any Term Sheet or any amendment or
supplement to any of the foregoing shall be deemed to include the copy filed
with the Commission pursuant to its Electronic Data Gathering, Analysis and
Retrieval system ("EDGAR").
All references in this Agreement to financial statements and schedules and
other information which is "contained," "included" or "stated" in the
Registration Statement, any preliminary prospectus or the Prospectus (or other
references of like import) shall be deemed to
-2-
<PAGE>
mean and include all such financial statements and schedules and other
information which is incorporated by reference in the Registration Statement,
any preliminary prospectus or the Prospectus, as the case may be; and all
references in this Agreement to amendments or supplements to the Registration
Statement, any preliminary prospectus or the Prospectus shall be deemed to mean
and include the filing of any document under the Securities Exchange Act of 1934
(the "1934 Act") which is incorporated by reference in the Registration
Statement, such preliminary prospectus or the Prospectus, as the case may be.
SECTION 1. Representations and Warranties.
------------------------------
(a) Representations and Warranties by the Company. The Company
represents and warrants to each Underwriter as of the date hereof, as of the
Closing Time referred to in Section 2(c) hereof, and as of each Date of Delivery
(if any) referred to in Section 2(b) hereof, and agrees with each Underwriter,
as follows:
(i) Compliance with Registration Requirements. The Company meets
-----------------------------------------
the requirements for use of Form S-3 under the 1933 Act. Each of the
Registration Statement and any Rule 462(b) Registration Statement has
become effective under the 1933 Act and no stop order suspending the
effectiveness of the Registration Statement or any Rule 462(b) Registration
Statement has been issued under the 1933 Act and no proceedings for that
purpose have been instituted or are pending or, to the knowledge of the
Company, are contemplated by the Commission, and any request on the part of
the Commission for additional information has been complied with.
At the respective times the Registration Statement, any Rule 462(b)
Registration Statement and any post-effective amendments thereto became
effective and at the Closing Time (and, if any Option Securities are purchased,
at the Date of Delivery), the Registration Statement, the Rule 462(b)
Registration Statement and any post-effective amendments thereto complied and
will comply in all material respects with the requirements of the 1933 Act and
the 1933 Act Regulations and did not and will not contain an untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein not misleading. Neither the
Prospectus nor any amendments or supplements thereto, at the time the Prospectus
or any such amendment or supplement was issued and at the Closing Time (and, if
any Option Securities are purchased, at the Date of Delivery), included or will
include an untrue statement of a material fact or omitted or will omit to state
a material fact necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading. If Rule 434 is
used, the Company will comply with the requirements of Rule 434. The
representations and warranties in this subsection shall not apply to statements
in or omissions from the Registration Statement or Prospectus made in reliance
upon and in conformity with information furnished to the Company in writing by
any Underwriter through Merrill Lynch expressly for use in the Registration
Statement or Prospectus.
Each preliminary prospectus and the prospectus filed as part of the
Registration Statement as originally filed or as part of any amendment thereto,
or filed pursuant to Rule 424 under the 1933 Act, complied when so filed in all
material respects with the 1933 Act Regulations and
-3-
<PAGE>
each preliminary prospectus and the Prospectus delivered to the Underwriters for
use in connection with this offering was identical to the electronically
transmitted copies thereof filed with the Commission pursuant to EDGAR, except
to the extent permitted by Regulation S-T.
(ii) Incorporated Documents. The documents incorporated or deemed
----------------------
to be incorporated by reference in the Registration Statement and the
Prospectus, at the time they were or hereafter are filed with the
Commission, complied and will comply in all material respects with the
requirements of the 1934 Act and the rules and regulations of the
Commission thereunder (the "1934 Act Regulations"), and, when read together
with the other information in the Prospectus, at the time the Registration
Statement became effective, at the time the Prospectus was issued and at
the Closing Time (and, if any Option Securities are purchased, at the Date
of Delivery), did not and will not contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading.
(iii) Independent Accountants. The accountants who certified the
-----------------------
financial statements and supporting schedules included in the Registration
Statement are independent public accountants as required by the 1933 Act
and the 1933 Act Regulations.
(iv) Financial Statements. The financial statements included in the
--------------------
Registration Statement and the Prospectus, together with the related
schedules and notes, present fairly the financial position of the Company
and its consolidated subsidiaries at the dates indicated and the statements
of operations, stockholders' equity and cash flows of the Company and its
consolidated subsidiaries for the periods specified; said financial
statements have been prepared in conformity with generally accepted
accounting principles ("GAAP") applied on a consistent basis throughout the
periods involved. The supporting schedules, if any, included in the
Registration Statement present fairly in accordance with GAAP the
information required to be stated therein. The selected financial data and
the summary financial information included in the Prospectus present fairly
the information shown therein and have been compiled on a basis consistent
with that of the audited financial statements included in the Registration
Statement.
(v) No Material Adverse Change in Business. Since the respective
--------------------------------------
dates as of which information is given in the Registration Statement and
the Prospectus, except as otherwise stated therein, (A) there has been no
material adverse change in the condition, financial or otherwise, or in the
earnings, business affairs or business prospects of the Company and its
subsidiaries considered as one enterprise, whether or not arising in the
ordinary course of business (a "Material Adverse Effect"), (B) there have
been no transactions entered into by the Company or any of its
subsidiaries, other than those in the ordinary course of business, which
are material with respect to the Company and its subsidiaries considered as
one enterprise, and (C) there has been no dividend or distribution of any
kind declared, paid or made by the Company on any class of its capital
stock.
(vi) Good Standing of the Company. The Company has been duly
----------------------------
organized and is validly existing as a corporation in good standing under
the laws of the State of Delaware and has corporate power and corporate
authority to own, lease and operate its properties and to conduct its
-4-
<PAGE>
business as described in the Prospectus and to enter into and perform its
obligations under this Agreement; and the Company is duly qualified as a
foreign corporation to transact business and is in good standing in each
other jurisdiction in which such qualification is required, whether by
reason of the ownership or leasing of property or the conduct of business,
except where the failure so to qualify or to be in good standing would not
result in a Material Adverse Effect.
(vii) Good Standing of Subsidiaries. The Company has only one
-----------------------------
subsidiary, athome.net, which does not constitute a significant subsidiary
as defined in Rule 1-02 of Regulation S-X.
(viii) Capitalization. The shares of issued and outstanding
--------------
capital stock have been duly authorized and validly issued and are fully
paid and non-assessable; none of the outstanding shares of capital stock
was issued in violation of the preemptive or other similar rights of any
securityholder of the Company.
(ix) Authorization of Agreement. This Agreement has been duly
--------------------------
authorized, executed and delivered by the Company.
(x) Authorization and Description of Securities. The Securities to
-------------------------------------------
be purchased by the Underwriters from the Company have been duly authorized
for issuance and sale to the Underwriters pursuant to this Agreement and,
when issued and delivered by the Company pursuant to this Agreement against
payment of the consideration set forth herein, will be validly issued and
fully paid and non-assessable; the Common Stock conforms, in all material
respects, to all statements relating thereto contained in the Prospectus
and such description conforms, in all material respects, to the rights set
forth in the instruments defining the same; no holder of the Securities
will be subject to personal liability by reason of being such a holder; and
the issuance of the Securities is not subject to the preemptive or other
similar rights of any securityholder of the Company.
(xi) Absence of Defaults and Conflicts. Neither the Company nor any
---------------------------------
of its subsidiaries is in violation of its charter or by-laws or in default
in the performance or observance of any obligation, agreement, covenant or
condition contained in any contract, indenture, mortgage, deed of trust,
loan or credit agreement, note, lease or other agreement or instrument to
which the Company or any of its subsidiaries is a party or by which it or
any of them may be bound, or to which any of the property or assets of the
Company or any subsidiary is subject (collectively, "Agreements and
Instruments") except for such defaults that would not result in a Material
Adverse Effect; and the execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated herein and
in the Registration Statement (including the issuance and sale of the
Securities and the use of the proceeds from the sale of the Securities as
described in the Prospectus under the caption "Use of Proceeds") and
compliance by the Company with its obligations hereunder have been duly
authorized by all necessary corporate action and do not and will not,
whether with or without the giving of notice or passage of time or both,
conflict with or constitute a breach of, or default or Repayment Event (as
defined below) under, or result in the creation or imposition of any lien,
charge or encumbrance upon any property or assets of the Company or any
subsidiary pursuant to, the Agreements and Instruments (except for such
conflicts, breaches or defaults or liens, charges or encumbrances
-5-
<PAGE>
that would not result in a Material Adverse Effect), nor will such action
result in any violation of the provisions of the charter or by-laws of the
Company or any subsidiary or any applicable law, statute, rule, regulation,
judgment, order, writ or decree of any government, government
instrumentality or court, domestic or foreign, having jurisdiction over the
Company or any subsidiary or any of their assets, properties or operations.
As used herein, a "Repayment Event" means any event or condition which
gives the holder of any note, debenture or other evidence of indebtedness
(or any person acting on such holder's behalf) the right to require the
repurchase, redemption or repayment of all or a portion of such
indebtedness by the Company or any subsidiary.
(xii) Absence of Labor Dispute. No labor dispute with the
------------------------
employees of the Company or any subsidiary exists or, to the knowledge of
the Company, is imminent, and the Company is not aware of any existing or
imminent labor disturbance by the employees of any of its or any
subsidiary's principal suppliers, manufacturers, customers or contractors,
which, in either case, may reasonably be expected to result in a Material
Adverse Effect.
(xiii) Absence of Proceedings. There is no action, suit,
----------------------
proceeding, inquiry or investigation before or brought by any court or
governmental agency or body, domestic or foreign, now pending, or, to the
knowledge of the Company, threatened, against or affecting the Company or
any subsidiary, which is required to be disclosed in the Registration
Statement (other than as disclosed therein), or which might reasonably be
expected to result in a Material Adverse Effect, or which might reasonably
be expected to materially and adversely affect the properties or assets
thereof or the consummation of the transactions contemplated in this
Agreement or the performance by the Company of its obligations hereunder;
the aggregate of all pending legal or governmental proceedings to which the
Company or any subsidiary is a party or of which any of their respective
property or assets is the subject which are not described in the
Registration Statement, including ordinary routine litigation incidental to
the business, could not reasonably be expected to result in a Material
Adverse Effect.
(xiv) Accuracy of Exhibits. There are no contracts or documents
--------------------
which are required to be described in the Registration Statement, the
Prospectus or the documents incorporated by reference therein or to be
filed as exhibits thereto which have not been so described and filed as
required.
(xv) Possession of Intellectual Property. The Company and its
-----------------------------------
subsidiaries own or possess, or can acquire on reasonable terms, adequate
patents, patent rights, licenses, inventions, copyrights, know-how
(including trade secrets and other unpatented and/or unpatentable
proprietary or confidential information, systems or procedures),
trademarks, service marks, trade names or other intellectual property
(collectively, "Intellectual Property") necessary to carry on the business
now operated by them, and neither the Company nor any of its subsidiaries
has received any notice or is otherwise aware of any infringement of or
conflict with asserted rights of others with respect to any Intellectual
Property or of any facts or circumstances which would render any
Intellectual Property invalid or inadequate to protect the interest of the
Company or any of its subsidiaries therein, and which infringement or
conflict (if the subject of
-6-
<PAGE>
any unfavorable decision, ruling or finding) or invalidity or inadequacy,
singly or in the aggregate, would result in a Material Adverse Effect.
(xvi) Absence of Further Requirements. No filing with, or
-------------------------------
authorization, approval, consent, license, order, registration,
qualification or decree of, any court or governmental authority or agency
is necessary or required for the performance by the Company of its
obligations hereunder, in connection with the offering, issuance or sale of
the Securities hereunder or the consummation of the transactions
contemplated by this Agreement, except such as have been already obtained
or as may be required under the 1933 Act or the 1933 Act Regulations or
state securities laws.
(xvii) Possession of Licenses and Permits. The Company and its
----------------------------------
subsidiaries possess such permits, licenses, approvals, consents and other
authorizations (collectively, "Governmental Licenses") issued by the
appropriate federal, state, local or foreign regulatory agencies or bodies
necessary to conduct the business now operated by them; the Company and its
subsidiaries are in compliance with the terms and conditions of all such
Governmental Licenses, except where the failure so to comply would not,
singly or in the aggregate, have a Material Adverse Effect; all of the
Governmental Licenses are valid and in full force and effect, except when
the invalidity of such Governmental Licenses or the failure of such
Governmental Licenses to be in full force and effect would not have a
Material Adverse Effect; and neither the Company nor any of its
subsidiaries has received any notice of proceedings relating to the
revocation or modification of any such Governmental Licenses which, singly
or in the aggregate, if the subject of an unfavorable decision, ruling or
finding, would result in a Material Adverse Effect.
(xviii) Title to Property. The Company and its subsidiaries have
-----------------
good and marketable title to all real property owned by the Company and its
subsidiaries and good title to all other properties owned by them, in each
case, free and clear of all mortgages, pledges, liens, security interests,
claims, restrictions or encumbrances of any kind except such as (a) are
described in the Prospectus or (b) do not, singly or in the aggregate,
materially affect the value of such property and do not interfere with the
use made and proposed to be made of such property by the Company or any of
its subsidiaries; and all of the leases and subleases material to the
business of the Company and its subsidiaries, considered as one enterprise,
and under which the Company or any of its subsidiaries holds properties
described in the Prospectus, are in full force and effect, and neither the
Company nor any subsidiary has any notice of any material claim of any sort
that has been asserted by anyone adverse to the rights of the Company or
any subsidiary under any of the leases or subleases mentioned above, or
affecting or questioning the rights of the Company or such subsidiary to
the continued possession of the leased or subleased premises under any such
lease or sublease.
(xix) Compliance with Cuba Act. The Company has complied with, and
------------------------
is and will be in compliance with, the provisions of that certain Florida
act relating to disclosure of doing business with Cuba, codified as Section
517.075 of the Florida statutes, and the rules and regulations thereunder
(collectively, the "Cuba Act") or is exempt therefrom.
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<PAGE>
(xx) Environmental Laws. Except as described in the Registration
------------------
Statement and except as would not, singly or in the aggregate, result in a
Material Adverse Effect, (A) neither the Company nor any of its
subsidiaries is in violation of any federal, state, local or foreign
statute, law, rule, regulation, ordinance, code, policy or rule of common
law or any judicial or administrative interpretation thereof, including any
judicial or administrative order, consent, decree or judgment, relating to
pollution or protection of human health, the environment (including,
without limitation, ambient air, surface water, groundwater, land surface
or subsurface strata) or wildlife, including, without limitation, laws and
regulations relating to the release or threatened release of chemicals,
pollutants, contaminants, wastes, toxic substances, hazardous substances,
petroleum or petroleum products (collectively, "Hazardous Materials") or to
the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials (collectively,
"Environmental Laws"), (B) the Company and its subsidiaries have all
permits, authorizations and approvals required under any applicable
Environmental Laws and are each in compliance with their requirements, (C)
there are no pending or threatened administrative, regulatory or judicial
actions, suits, demands, demand letters, claims, liens, notices of
noncompliance or violation, investigation or proceedings relating to any
Environmental Law against the Company or any of its subsidiaries and (D)
there are no events or circumstances that might reasonably be expected to
form the basis of an order for clean-up or remediation, or an action, suit
or proceeding by any private party or governmental body or agency, against
or affecting the Company or any of its subsidiaries relating to Hazardous
Materials or any Environmental Laws.
(xxi) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurance that (i) transactions
are executed in accordance with management's general or specific
authorizations; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability; (iii) access to
assets is permitted only in accordance with management's general or
specific authorization; and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
(b) Officer's Certificates. Any certificate signed by any officer of
the Company or any of its subsidiaries delivered to the Representatives or to
counsel for the Underwriters shall be deemed a representation and warranty by
the Company to each Underwriter as to the matters covered thereby.
SECTION 2. Sale and Delivery to Underwriters; Closing.
------------------------------------------
(a) Initial Securities. On the basis of the representations and
warranties herein contained and subject to the terms and conditions herein set
forth, the Company agrees to sell to each Underwriter, severally and not
jointly, and each Underwriter, severally and not jointly, agrees to purchase
from the Company, at the price per share set forth in Schedule B, the number of
Initial Securities set forth in Schedule A opposite the name of such
Underwriter, plus any additional number of Initial Securities which such
Underwriter may become obligated to purchase pursuant to the provisions of
Section 10 hereof.
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<PAGE>
(b) Option Securities. In addition, on the basis of the
representations and warranties herein contained and subject to the terms and
conditions herein set forth, the Company hereby grants an option to the
Underwriters, severally and not jointly, to purchase up to an additional 375,000
shares of Common Stock, at the price per share set forth in Schedule C, less an
amount per share equal to any dividends or distributions declared by the Company
and payable on the Initial Securities but not payable on the Option Securities.
The option hereby granted will expire 30 days after the date hereof and may be
exercised in whole or in part from time to time only for the purpose of covering
over-allotments which may be made in connection with the offering and
distribution of the Initial Securities upon notice by the Representatives to the
Company setting forth the number of Option Securities as to which the several
Underwriters are then exercising the option and the time and date of payment and
delivery for such Option Securities. Any such time and date of delivery (a "Date
of Delivery") shall be determined by the Representatives, but shall not be later
than seven full business days after the exercise of said option, nor in any
event prior to the Closing Time, as hereinafter defined. If the option is
exercised as to all or any portion of the Option Securities, each of the
Underwriters, acting severally and not jointly, will purchase that proportion of
the total number of Option Securities then being purchased which the number of
Initial Securities set forth in Schedule A opposite the name of such Underwriter
bears to the total number of Initial Securities, subject in each case to such
adjustments as the Representatives in their discretion shall make to eliminate
any sales or purchases of fractional shares.
(c) Payment. Payment of the purchase price for, and delivery of
certificates for, the Initial Securities shall be made at the offices of Fenwick
& West LLP, Two Palo Alto Square, Palo Alto, CA 94306, or at such other place as
shall be agreed upon by the Representatives and the Company, at 7:00 A.M.
(California time) on the third (fourth, if the pricing occurs after 4:30 P.M.
(Eastern time) on any given day) business day after the date hereof (unless
postponed in accordance with the provisions of Section 10), or such other time
not later than ten business days after such date as shall be agreed upon by the
Representatives and the Company (such time and date of payment and delivery
being herein called "Closing Time").
In addition, in the event that any or all of the Option Securities are
purchased by the Underwriters, payment of the purchase price for, and delivery
of certificates for, such Option Securities shall be made at the above-mentioned
offices, or at such other place as shall be agreed upon by the Representatives
and the Company, on each Date of Delivery as specified in the notice from the
Representatives to the Company.
Payment shall be made to the Company by wire transfer of immediately
available funds to a bank account designated by the Company, against delivery to
the Representatives for the respective accounts of the Underwriters of
certificates for the Securities to be purchased by them. It is understood that
each Underwriter has authorized the Representatives, for its account, to accept
delivery of, receipt for, and make payment of the purchase price for, the
Initial Securities and the Option Securities, if any, which it has agreed to
purchase. Merrill Lynch, individually and not as representative of the
Underwriters, may (but shall not be obligated to) make payment of the purchase
price for the Initial Securities or the Option Securities, if any, to be
purchased by any Underwriter whose funds have not been received by the Closing
Time or the relevant Date of
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Delivery, as the case may be, but such payment shall not relieve such
Underwriter from its obligations hereunder.
(d) Denominations; Registration. Certificates for the Initial
Securities and the Option Securities, if any, shall be in such denominations and
registered in such names as the Representatives may request in writing at least
one full business day before the Closing Time or the relevant Date of Delivery,
as the case may be. The certificates for the Initial Securities and the Option
Securities, if any, will be made available for examination and packaging by the
Representatives in The City of New York not later than 10:00 A.M. (Eastern time)
on the business day prior to the Closing Time or the relevant Date of Delivery,
as the case may be.
SECTION 3. Covenants of the Company. The Company covenants with each
------------------------
Underwriter as follows:
(a) Compliance with Securities Regulations and Commission Requests.
The Company, subject to Section 3(b), will comply with the requirements of
Rule 430A or Rule 434, as applicable, and will notify the Representatives
immediately, and confirm the notice in writing, (i) when any post-effective
amendment to the Registration Statement shall become effective, or any
supplement to the Prospectus or any amended Prospectus shall have been filed,
(ii) of the receipt of any comments from the Commission, (iii) of any request by
the Commission for any amendment to the Registration Statement or any amendment
or supplement to the Prospectus or for additional information, and (iv) of the
issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement or of any order preventing or suspending the use of any
preliminary prospectus, or of the suspension of the qualification of the
Securities for offering or sale in any jurisdiction, or of the initiation or
threatening of any proceedings for any of such purposes. The Company will
promptly effect the filings necessary pursuant to Rule 424(b) and will take such
steps as it deems necessary to ascertain promptly whether the form of prospectus
transmitted for filing under Rule 424(b) was received for filing by the
Commission and, in the event that it was not, it will promptly file such
prospectus. The Company will make every reasonable effort to prevent the
issuance of any stop order and, if any stop order is issued, to obtain the
lifting thereof at the earliest possible moment.
(b) Filing of Amendments. The Company will give the Representatives
notice of its intention to file or prepare any amendment to the Registration
Statement (including any filing under Rule 462(b)), any Term Sheet or any
amendment, supplement or revision to either the prospectus included in the
Registration Statement at the time it became effective or to the Prospectus,
whether pursuant to the 1933 Act, the 1934 Act or otherwise, will furnish the
Representatives with copies of any such documents a reasonable amount of time
prior to such proposed filing or use, as the case may be, and will not file or
use any such document to which the Representatives or counsel for the
Underwriters shall object.
(c) Delivery of Registration Statements. The Company has furnished or
will deliver to the Representatives and counsel for the Underwriters, without
charge, signed copies of the Registration Statement as originally filed and of
each amendment thereto (including exhibits filed therewith or incorporated by
reference therein and documents incorporated or deemed to be
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<PAGE>
incorporated by reference therein) and signed copies of all consents and
certificates of experts, and will also deliver to the Representatives, without
charge, a conformed copy of the Registration Statement as originally filed and
of each amendment thereto (without exhibits) for each of the Underwriters. The
copies of the Registration Statement and each amendment thereto furnished to the
Underwriters will be identical to the electronically transmitted copies thereof
filed with the Commission pursuant to EDGAR, except to the extent permitted by
Regulation S-T.
(d) Delivery of Prospectuses. The Company has delivered to each
Underwriter, without charge, as many copies of each preliminary prospectus as
such Underwriter reasonably requested, and the Company hereby consents to the
use of such copies for purposes permitted by the 1933 Act. The Company will
furnish to each Underwriter, without charge, during the period when the
Prospectus is required to be delivered under the 1933 Act or the 1934 Act, such
number of copies of the Prospectus (as amended or supplemented) as such
Underwriter may reasonably request. The Prospectus and any amendments or
supplements thereto furnished to the Underwriters will be identical to the
electronically transmitted copies thereof filed with the Commission pursuant to
EDGAR, except to the extent permitted by Regulation S-T.
(e) Continued Compliance with Securities Laws. The Company will comply
with the 1933 Act and the 1933 Act Regulations and the 1934 Act and the 1934 Act
Regulations so as to permit the completion of the distribution of the Securities
as contemplated in this Agreement and in the Prospectus. If at any time when a
prospectus is required by the 1933 Act to be delivered in connection with sales
of the Securities, any event shall occur or condition shall exist as a result of
which it is necessary, in the reasonable opinion of counsel for the Underwriters
or for the Company, to amend the Registration Statement or amend or supplement
the Prospectus in order that the Prospectus will not include any untrue
statements of a material fact or omit to state a material fact necessary in
order to make the statements therein not misleading in the light of the
circumstances existing at the time it is delivered to a purchaser, or if it
shall be necessary, in the reasonable opinion of such counsel, at any such time
to amend the Registration Statement or amend or supplement the Prospectus in
order to comply with the requirements of the 1933 Act or the 1933 Act
Regulations, the Company will promptly prepare and file with the Commission,
subject to Section 3(b), such amendment or supplement as may be necessary to
correct such statement or omission or to make the Registration Statement or the
Prospectus comply with such requirements, and the Company will furnish to the
Underwriters such number of copies of such amendment or supplement as the
Underwriters may reasonably request.
(f) Blue Sky Qualifications. The Company will use its best efforts, in
cooperation with the Underwriters, to qualify the Securities for offering and
sale under the applicable securities laws of such states and other jurisdictions
(domestic or foreign) as the Representatives may reasonably designate and to
maintain such qualifications in effect for a period of not less than one year
from the later of the effective date of the Registration Statement and any Rule
462(b) Registration Statement; provided, however, that the Company shall not be
obligated to file any general consent to service of process or to qualify as a
foreign corporation or as a dealer in securities in any jurisdiction in which it
is not so qualified or to subject itself to taxation in respect of doing
business in any jurisdiction in which it is not otherwise so subject. In each
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<PAGE>
jurisdiction in which the Securities have been so qualified, the Company will
file such statements and reports as may be required by the laws of such
jurisdiction to continue such qualification in effect for a period of not less
than one year from the effective date of the Registration Statement and any Rule
462(b) Registration Statement.
(g) Rule 158. The Company will timely file such reports pursuant to
the 1934 Act as are necessary in order to make generally available to its
securityholders as soon as practicable an earnings statement for the purposes
of, and to provide the benefits contemplated by, the last paragraph of Section
11(a) of the 1933 Act.
(h) Use of Proceeds. The Company will use the net proceeds received by
it from the sale of the Securities in the manner specified in the Prospectus
under "Use of Proceeds."
(i) Listing. The Company will use its best efforts to effect and
maintain the quotation of the Securities on the Nasdaq National Market and will
file with the Nasdaq National Market all documents and notices required by the
Nasdaq National Market of companies that have securities that are traded in the
over-the-counter market and quotations for which are reported by the Nasdaq
National Market.
(j) Restriction on Sale of Securities. During a period of 90 days from
the date of the Prospectus, the Company will not, without the prior written
consent of Merrill Lynch, (i) directly or indirectly, offer, pledge, sell,
contract to sell, sell any option or contract to purchase, purchase any option
or contract to sell, grant any option, right or warrant to purchase or otherwise
transfer or dispose of any share of Common Stock or any securities convertible
into or exercisable or exchangeable for Common Stock or file any registration
statement under the 1933 Act with respect to any of the foregoing or (ii) enter
into any swap or any other agreement or any transaction that transfers, in whole
or in part, directly or indirectly, the economic consequence of ownership of the
Common Stock, whether any such swap or transaction described in clause (i) or
(ii) above is to be settled by delivery of Common Stock or such other
securities, in cash or otherwise. The foregoing sentence shall not apply to (A)
the Securities to be sold hereunder, (B) any shares of Common Stock issued by
the Company upon the exercise of an option or warrant or the conversion of a
security outstanding on the date hereof and referred to in the Prospectus, (C)
any shares of Common Stock issued or options to purchase Common Stock granted
pursuant to existing employee benefit plans of the Company referred to in the
Prospectus or (D) any shares of Common Stock issued pursuant to any non-employee
director stock plan or dividend reinvestment plan.
(k) Reporting Requirements. The Company, during the period when the
Prospectus is required to be delivered under the 1933 Act or the 1934 Act, will
file all documents required to be filed with the Commission pursuant to the 1934
Act within the time periods required by the 1934 Act and the 1934 Act
Regulations.
SECTION 4. Payment of Expenses.
-------------------
(a) Expenses. The Company will pay or cause to be paid all expenses
incident to the performance of their obligations under this Agreement, including
(i) the preparation,
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printing and filing of the Registration Statement (including financial
statements and exhibits) as originally filed and of each amendment thereto, (ii)
the preparation, printing and delivery to the Underwriters of this Agreement,
any Agreement among Underwriters and such other documents as may be required in
connection with the offering, purchase, sale, issuance or delivery of the
Securities, (iii) the preparation, issuance and delivery of the certificates for
the Securities to the Underwriters, including any stock or other transfer taxes
and any stamp or other duties payable upon the sale, issuance or delivery of the
Securities to the Underwriters, (iv) the fees and disbursements of the Company's
counsel, accountants and other advisors, (v) the qualification of the Securities
under securities laws in accordance with the provisions of Section 3(f) hereof,
including filing fees and the reasonable fees and disbursements of counsel for
the Underwriters in connection therewith and in connection with the preparation
of the Blue Sky Survey and any supplement thereto, (vi) the printing and
delivery to the Underwriters of copies of each preliminary prospectus, any Term
Sheets and of the Prospectus and any amendments or supplements thereto, (vii)
the preparation, printing and delivery to the Underwriters of copies of the Blue
Sky Survey and any supplement thereto, (viii) the fees and expenses of any
transfer agent or registrar for the Securities and (ix) the filing fees incident
to, and the reasonable fees and disbursements of counsel to the Underwriters in
connection with, the review by the National Association of Securities Dealers,
Inc. (the "NASD") of the terms of the sale of the Securities and (x) the fees
and expenses incurred in connection with the inclusion of the Securities in the
Nasdaq National Market.
(b) Termination of Agreement. If this Agreement is terminated by the
Representatives in accordance with the provisions of Section 5, Section 9(a)(i)
or Section 11 hereof, the Company shall reimburse the Underwriters for all of
their out-of-pocket expenses, including the reasonable fees and disbursements of
counsel for the Underwriters.
SECTION 5. Conditions of Underwriters' Obligations. The obligations of
---------------------------------------
the several Underwriters hereunder are subject to the accuracy of the
representations and warranties of the Company contained in Section 1 hereof or
in certificates of any officer of the Company or any subsidiary of the Company
delivered pursuant to the provisions hereof, to the performance by the Company
of its covenants and other obligations hereunder, and to the following further
conditions:
(a) Effectiveness of Registration Statement. The Registration
Statement, including any Rule 462(b) Registration Statement, has become
effective and at Closing Time no stop order suspending the effectiveness of the
Registration Statement shall have been issued under the 1933 Act or proceedings
therefor initiated or threatened by the Commission, and any request on the part
of the Commission for additional information shall have been complied with to
the reasonable satisfaction of counsel to the Underwriters. A prospectus
containing the Rule 430A Information shall have been filed with the Commission
in accordance with Rule 424(b) (or a post-effective amendment providing such
information shall have been filed and declared effective in accordance with the
requirements of Rule 430A) or, if the Company has elected to rely upon Rule 434,
a Term Sheet shall have been filed with the Commission in accordance with Rule
424(b).
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<PAGE>
(b) Opinion of Counsel for Company. At Closing Time, the
Representatives shall have received the favorable opinion, dated as of Closing
Time, of Fenwick & West LLP, counsel for the Company, in form and substance
satisfactory to counsel for the Underwriters, together with signed or reproduced
copies of such letter for each of the other Underwriters to the effect set forth
in Exhibit A hereto and to such further effect as counsel to the Underwriters
may reasonably request.
(c) Opinion of Counsel for Underwriters. At Closing Time, the
Representatives shall have received the favorable opinion, dated as of Closing
Time, of Wilson Sonsini Goodrich & Rosati, a Professional Corporation, counsel
for the Underwriters, together with signed or reproduced copies of such letter
for each of the other Underwriters with respect to the matters set forth in
clauses (i), (ii), (v), (vi) (solely as to preemptive or other similar rights
arising by operation of law or under the charter or by-laws of the Company),
(viii) through (x), inclusive, (xiii), (xv) (solely as to the information in the
Prospectus under "Description of Capital Stock--Common Stock") and the
penultimate paragraph of Exhibit A hereto. In giving such opinion such counsel
may rely, as to all matters governed by the laws of jurisdictions other than the
law of the State of New York, the federal law of the United States, and the
General Corporation Law of the State of Delaware, upon the opinions of counsel
satisfactory to the Representatives. Such counsel may also state that, insofar
as such opinion involves factual matters, they have relied, to the extent they
deem proper, upon certificates of officers of the Company and its subsidiaries
and certificates of public officials.
(d) Officers' Certificate. At Closing Time, there shall not have been,
since the date hereof or since the respective dates as of which information is
given in the Prospectus, any material adverse change in the condition, financial
or otherwise, or in the earnings, business affairs or business prospects of the
Company and its subsidiaries considered as one enterprise, whether or not
arising in the ordinary course of business, and the Representatives shall have
received a certificate of the President or a Vice President of the Company and
of the chief financial or chief accounting officer of the Company, dated as of
Closing Time, to the effect that (i) there has been no such material adverse
change, (ii) the representations and warranties in Section 1(a) hereof are true
and correct with the same force and effect as though expressly made at and as of
Closing Time, (iii) the Company has complied with all agreements and satisfied
all conditions on its part to be performed or satisfied at or prior to Closing
Time, and (iv) no stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose have been
instituted or are pending or are contemplated by the Commission.
(e) Accountant's Comfort Letter. At the time of the execution of this
Agreement, the Representatives shall have received from Ernst & Young LLP a
letter dated such date, in form and substance satisfactory to the
Representatives, together with signed or reproduced copies of such letter for
each of the other Underwriters containing statements and information of the type
ordinarily included in accountants' "comfort letters" to underwriters with
respect to the financial statements and certain financial information contained
in the Registration Statement and the Prospectus.
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<PAGE>
(f) Bring-down Comfort Letter. At Closing Time, the Representatives
shall have received from Ernst & Young LLP a letter, dated as of Closing Time,
to the effect that they reaffirm the statements made in the letter furnished
pursuant to subsection (e) of this Section, except that the specified date
referred to shall be a date not more than three business days prior to Closing
Time.
(g) Approval of Listing. At Closing Time, the Securities shall have
been approved for inclusion in the Nasdaq National Market, subject only to
official notice of issuance.
(h) No Objection. The NASD shall have confirmed that it has not raised
any objection with respect to the fairness and reasonableness of the
underwriting terms and arrangements.
(i) Lock-up Agreements. At the date of this Agreement, the
Representatives shall have received an agreement substantially in the form of
Exhibit C hereto signed by the persons listed on Schedule C hereto.
(j) Conditions to Purchase of Option Securities. In the event that the
Underwriters exercise their option provided in Section 2(b) hereof to purchase
all or any portion of the Option Securities, the representations and warranties
of the Company contained herein and the statements in any certificates furnished
by the Company hereunder shall be true and correct as of each Date of Delivery
and, at the relevant Date of Delivery, the Representatives shall have received:
(i) Officers' Certificate. A certificate, dated such Date of
---------------------
Delivery, of the President or a Vice President of the Company and of the
chief financial or chief accounting officer of the Company confirming that
the certificate delivered at the Closing Time pursuant to Section 5(e)
hereof remains true and correct as of such Date of Delivery.
(ii) Opinion of Counsel for Company. The favorable opinion of
------------------------------
Fenwick & West LLP, counsel for the Company, in form and substance
satisfactory to counsel for the Underwriters, dated such Date of Delivery,
relating to the Option Securities to be purchased on such Date of Delivery
and otherwise to the same effect as the opinion required by Section 5(b)
hereof.
(iii) Opinion of Counsel for Underwriters. The favorable opinion
-----------------------------------
of Wilson Sonsini Goodrich & Rosati, a Professional Corporation, counsel
for the Underwriters, dated such Date of Delivery, relating to the Option
Securities to be purchased on such Date of Delivery and otherwise to the
same effect as the opinion required by Section 5(d) hereof.
(iv) Bring-down Comfort Letter. A letter from Ernst & Young LLP, in
-------------------------
form and substance satisfactory to the Representatives and dated such Date
of Delivery, substantially in the same form and substance as the letter
furnished to the Representatives pursuant to Section 5(e) hereof, except
that the "specified date" in the letter furnished pursuant to this
paragraph shall be a date not more than five days prior to such Date of
Delivery.
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<PAGE>
(k) Additional Documents. At Closing Time and at each Date of Delivery
counsel for the Underwriters shall have been furnished with such documents and
opinions as they may require for the purpose of enabling them to pass upon the
issuance and sale of the Securities as herein contemplated, or in order to
evidence the accuracy of any of the representations or warranties, or the
fulfillment of any of the conditions, herein contained; and all proceedings
taken by the Company in connection with the issuance and sale of the Securities
as herein contemplated shall be reasonably satisfactory in form and substance to
the Representatives and counsel for the Underwriters.
(l) Termination of Agreement. If any condition specified in this
Section shall not have been fulfilled when and as required to be fulfilled, this
Agreement, or, in the case of any condition to the purchase of Option Securities
on a Date of Delivery which is after the Closing Time, the obligations of the
several Underwriters to purchase the relevant Option Securities, may be
terminated by the Representatives by notice to the Company at any time at or
prior to Closing Time or such Date of Delivery, as the case may be, and such
termination shall be without liability of any party to any other party except as
provided in Section 4 and except that Sections 1, 6, 7 and 8 shall survive any
such termination and remain in full force and effect.
SECTION 6. Indemnification.
---------------
(a) Indemnification of Underwriters. The Company agrees to indemnify
and hold harmless each Underwriter and each person, if any, who controls any
Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act as follows:
(i) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, arising out of any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement
(or any amendment thereto), including the Rule 430A Information and the
Rule 434 Information, if applicable, or the omission or alleged omission
therefrom of a material fact required to be stated therein or necessary to
make the statements therein not misleading or arising out of any untrue
statement or alleged untrue statement of a material fact included in any
preliminary prospectus or the Prospectus (or any amendment or supplement
thereto), or the omission or alleged omission therefrom of a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading;
(ii) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission; provided that (subject to Section
6(d) below) any such settlement is effected with the written consent of the
Company ; and
(iii) against any and all expense whatsoever, as incurred
(including the fees and disbursements of counsel chosen by Merrill Lynch),
reasonably incurred in investigating, preparing or defending against any
litigation, or any investigation or proceeding by any governmental agency
or body, commenced or threatened, or any claim whatsoever based
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upon any such untrue statement or omission, or any such alleged untrue
statement or omission, to the extent that any such expense is not paid
under (i) or (ii) above;
provided, however, that this indemnity agreement shall not apply to any
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loss, liability, claim, damage or expense to the extent arising out of any
untrue statement or omission or alleged untrue statement or omission made
in reliance upon and in conformity with written information furnished to
the Company by any Underwriter through Merrill Lynch expressly for use in
the Registration Statement (or any amendment thereto), including the Rule
430A Information and the Rule 434 Information, if applicable, or any
preliminary prospectus or the Prospectus (or any amendment or supplement
thereto) and provided further that this indemnity agreement with respect to
any preliminary prospectus shall not inure to the benefit of any
Underwriter from whom the person asserting any such loss, liability, claim,
damage or expense purchased Securities, or any person controlling such
Underwriter, if (i) a copy of the Prospectus (as then amended or
supplemented if the Company shall have furnished any amendments or
supplements thereto) was not sent or given by or on behalf of such
Underwriter to such person at or prior to the written confirmation of the
sale of the Shares to such person, (ii) the Company has complied with its
obligations under Section 3(d) hereof and (iii) the Prospectus (as so
amended or supplemented) would have cured the defect giving rise to such
loss, liability, claim, damage or expense.
(b) Indemnification of Company, Directors and Officers. Each
Underwriter severally agrees to indemnify and hold harmless the Company, its
directors, each of its officers who signed the Registration Statement, and each
person, if any, who controls the Company within the meaning of Section 15 of the
1933 Act or Section 20 of the 1934 Act, against any and all loss, liability,
claim, damage and expense described in the indemnity contained in subsection (a)
of this Section, as incurred, but only with respect to untrue statements or
omissions, or alleged untrue statements or omissions, made in the Registration
Statement (or any amendment thereto), including the Rule 430A Information and
the Rule 434 Information, if applicable, or any preliminary prospectus or the
Prospectus (or any amendment or supplement thereto) in reliance upon and in
conformity with written information furnished to the Company by such Underwriter
through Merrill Lynch expressly for use in the Registration Statement (or any
amendment thereto) or such preliminary prospectus or the Prospectus (or any
amendment or supplement thereto).
(c) Actions against Parties; Notification. Each indemnified party shall
give notice as promptly as reasonably practicable to each indemnifying party of
any action commenced against it in respect of which indemnity may be sought
hereunder, but failure to so notify an indemnifying party shall not relieve such
indemnifying party from any liability hereunder to the extent it is not
materially prejudiced as a result thereof and in any event shall not relieve it
from any liability which it may have otherwise than on account of this indemnity
agreement. In the case of parties indemnified pursuant to Section 6(a) above,
counsel to the indemnified parties shall be selected by Merrill Lynch, and, in
the case of parties indemnified pursuant to Section 6(b) above, counsel to the
indemnified parties shall be selected by the Company. An indemnifying party may
participate at its own expense in the defense of any such action; provided,
however, that counsel to the indemnifying party shall not (except with the
consent of the indemnified party) also be counsel to the indemnified party. In
no event shall the indemnifying parties be liable for fees and expenses of more
than one counsel (in addition to any local counsel) separate from their own
counsel for all indemnified parties in connection with any one action or
separate but similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances. No indemnifying party shall,
without the prior written consent of the indemnified parties, settle or
compromise or consent to the entry of any judgment with respect to any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever in respect of which
indemnification or contribution could be sought under this Section 6 or Section
7 hereof
-17-
<PAGE>
(whether or not the indemnified parties are actual or potential parties
thereto), unless such settlement, compromise or consent (i) includes an
unconditional release of each indemnified party from all liability arising out
of such litigation, investigation, proceeding or claim and (ii) does not include
a statement as to or an admission of fault, culpability or a failure to act by
or on behalf of any indemnified party.
(d) Settlement without Consent if Failure to Reimburse. If at any time
an indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel, such indemnifying party
agrees that it shall be liable for any settlement of the nature contemplated by
Section 6(a)(ii) effected without its written consent if (i) such settlement is
entered into more than 45 days after receipt by such indemnifying party of the
aforesaid request, (ii) such indemnifying party shall have received notice of
the terms of such settlement at least 30 days prior to such settlement being
entered into and (iii) such indemnifying party shall not have reimbursed such
indemnified party in accordance with such request prior to the date of such
settlement.
SECTION 7. Contribution. If the indemnification provided for in Section
------------
6 hereof is for any reason unavailable to or insufficient to hold harmless an
indemnified party in respect of any losses, liabilities, claims, damages or
expenses referred to therein, then each indemnifying party shall contribute to
the aggregate amount of such losses, liabilities, claims, damages and expenses
incurred by such indemnified party, as incurred, (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company on the one
hand and the Underwriters on the other hand from the offering of the Securities
pursuant to this Agreement or (ii) if the allocation provided by clause (i) is
not permitted by applicable law, in such proportion as is appropriate to reflect
not only the relative benefits referred to in clause (i) above but also the
relative fault of the Company on the one hand and of the Underwriters on the
other hand in connection with the statements or omissions which resulted in such
losses, liabilities, claims, damages or expenses, as well as any other relevant
equitable considerations.
The relative benefits received by the Company on the one hand and the
Underwriters on the other hand in connection with the offering of the Securities
pursuant to this Agreement shall be deemed to be in the same respective
proportions as the total net proceeds from the offering of the Securities
pursuant to this Agreement (before deducting expenses) received by the Company
and the total underwriting discount received by the Underwriters, in each case
as set forth on the cover of the Prospectus, or, if Rule 434 is used, the
corresponding location on the Term Sheet bear to the aggregate initial public
offering price of the Securities as set forth on such cover.
The relative fault of the Company on the one hand and the Underwriters on
the other hand shall be determined by reference to, among other things, whether
any such untrue or alleged untrue statement of a material fact or omission or
alleged omission to state a material fact relates to information supplied by the
Company or by the Underwriters and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission.
-18-
<PAGE>
The Company and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section 7 were determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above in this Section 7. The aggregate
amount of losses, liabilities, claims, damages and expenses incurred by an
indemnified party and referred to above in this Section 7 shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such untrue or alleged untrue
statement or omission or alleged omission.
Notwithstanding the provisions of this Section 7, no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Securities underwritten by it and distributed to the public
were offered to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of any such untrue or
alleged untrue statement or omission or alleged omission.
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 7, each person, if any, who controls an
Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act shall have the same rights to contribution as such Underwriter, and
each director of the Company, each officer of the Company who signed the
Registration Statement, and each person, if any, who controls the Company within
the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall
have the same rights to contribution as the Company. The Underwriters'
respective obligations to contribute pursuant to this Section 7 are several in
proportion to the number of Initial Securities set forth opposite their
respective names in Schedule A hereto and not joint.
SECTION 8. Representations, Warranties and Agreements to Survive
--------------------------------------------------------------
Delivery. All representations, warranties and agreements contained in this
- --------
Agreement or in certificates of officers of the Company submitted pursuant
hereto, shall remain operative and in full force and effect, regardless of any
investigation made by or on behalf of any Underwriter or controlling person, or
by or on behalf of the Company, and shall survive delivery of the Securities to
the Underwriters.
SECTION 9. Termination of Agreement.
------------------------
(a) Termination; General. The Representatives may terminate this
Agreement, by notice to the Company, at any time at or prior to Closing Time (i)
if there has been, since the time of execution of this Agreement or since the
respective dates as of which information is given in the Prospectus, any
material adverse change in the condition, financial or otherwise, or in the
earnings, business affairs or business prospects of the Company and its
subsidiaries considered as one enterprise, whether or not arising in the
ordinary course of business, or (ii) if there has occurred any material adverse
change in the financial markets in the
-19-
<PAGE>
United States or the international financial markets, any outbreak of
hostilities or escalation thereof or other calamity or crisis or any change or
development involving a prospective change in national or international
political, financial or economic conditions, in each case the effect of which is
such as to make it, in the judgment of the Representatives, impracticable to
market the Securities or to enforce contracts for the sale of the Securities, or
(iii) if trading in any securities of the Company has been suspended or
materially limited by the Commission or the Nasdaq National Market, or if
trading generally on the American Stock Exchange or the New York Stock Exchange
or in the Nasdaq National Market has been suspended or materially limited, or
minimum or maximum prices for trading have been fixed, or maximum ranges for
prices have been required, by any of said exchanges or by such system or by
order of the Commission, the National Association of Securities Dealers, Inc. or
any other governmental authority, or (iv) if a banking moratorium has been
declared by either Federal or New York authorities.
(b) Liabilities. If this Agreement is terminated pursuant to this
Section, such termination shall be without liability of any party to any other
party except as provided in Section 4 hereof, and provided further that Sections
1, 6, 7 and 8 shall survive such termination and remain in full force and
effect.
SECTION 10. Default by One or More of the Underwriters. If one or more
------------------------------------------
of the Underwriters shall fail at Closing Time or a Date of Delivery to purchase
the Securities which it or they are obligated to purchase under this Agreement
(the "Defaulted Securities"), the Representatives shall have the right, within
24 hours thereafter, to make arrangements for one or more of the non-defaulting
Underwriters, or any other underwriters, to purchase all, but not less than all,
of the Defaulted Securities in such amounts as may be agreed upon and upon the
terms herein set forth; if, however, the Representatives shall not have
completed such arrangements within such 24-hour period, then:
(a) if the number of Defaulted Securities does not exceed 10% of the
number of Securities to be purchased on such date, each of the non-defaulting
Underwriters shall be obligated, severally and not jointly, to purchase the full
amount thereof in the proportions that their respective underwriting obligations
hereunder bear to the underwriting obligations of all non-defaulting
Underwriters, or
(b) if the number of Defaulted Securities exceeds 10% of the number of
Securities to be purchased on such date, this Agreement or, with respect to any
Date of Delivery which occurs after the Closing Time, the obligation of the
Underwriters to purchase and of the Company to sell the Option Securities to be
purchased and sold on such Date of Delivery shall terminate without liability on
the part of any non-defaulting Underwriter.
No action taken pursuant to this Section shall relieve any defaulting
Underwriter from liability in respect of its default.
In the event of any such default which does not result in a termination of
this Agreement or, in the case of a Date of Delivery which is after the Closing
Time, which does not result in a termination of the obligation of the
Underwriters to purchase and the Company to sell the relevant Option Securities,
as the case may be, either (i) the Representatives or (ii) the Company
-20-
<PAGE>
shall have the right to postpone Closing Time or the relevant Date of Delivery,
as the case may be, for a period not exceeding seven days in order to effect any
required changes in the Registration Statement or Prospectus or in any other
documents or arrangements. As used herein, the term "Underwriter" includes any
person substituted for an Underwriter under this Section 10.
SECTION 11. Notices. All notices and other communications hereunder
-------
shall be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the
Underwriters shall be directed to the Representatives at North Tower, World
Financial Center, New York, New York 10281-1201 101 California Street, Suite
1420, San Francisco, California 94111 / 10900, Wilshire Boulevard, Suite 900,
Los Angeles, California 90024, attention of Matt Abrusci; and notices to the
Company shall be directed to it at At Home Corporation, 425 Broadway, Redwood
City, California 94063, attention of David G. Pine, Esq.
SECTION 12. Parties. This Agreement shall each inure to the benefit of
-------
and be binding upon the Underwriters, the Company and their respective
successors. Nothing expressed or mentioned in this Agreement is intended or
shall be construed to give any person, firm or corporation, other than the
Underwriters and the Company and their respective successors and the controlling
persons and officers and directors referred to in Sections 6 and 7 and their
heirs and legal representatives, any legal or equitable right, remedy or claim
under or in respect of this Agreement or any provision herein contained. This
Agreement and all conditions and provisions hereof are intended to be for the
sole and exclusive benefit of the Underwriters and the Company and their
respective successors, and said controlling persons and officers and directors
and their heirs and legal representatives, and for the benefit of no other
person, firm or corporation. No purchaser of Securities from any Underwriter
shall be deemed to be a successor by reason merely of such purchase.
SECTION 13. GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE GOVERNED BY
----------------------
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. SPECIFIED
TIMES OF DAY REFER TO NEW YORK CITY TIME.
SECTION 14. Effect of Headings. The Article and Section headings herein
------------------
and the Table of Contents are for convenience only and shall not affect the
construction hereof.
-21-
<PAGE>
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to the Company a counterpart hereof, whereupon this
instrument, along with all counterparts, will become a binding agreement among
the Underwriters and the Company in accordance with its terms.
Very truly yours,
AT HOME CORPORATION
By___________________________________
Title:
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
MORGAN STANLEY & CO. INCORPORATED
GOLDMAN, SACHS & CO.
BT ALEX. BROWN INCORPORATED
HAMBRECHT & QUIST LLC
By: MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By __________________________________________________
Authorized Signatory
For themselves and as Representatives of the other Underwriters named in
Schedule A hereto.
-22-
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Number of
Initial
Name of Underwriter Securities
- ------------------- ----------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...........................................................
Morgan Stanley & Co. Incorporated.........................................
Goldman, Sachs & Co.......................................................
BT Alex. Brown Incorporated...............................................
Hambrecht & Quist LLC.....................................................
----------
Total.....................................................................
==========
</TABLE>
Sch A-1
<PAGE>
SCHEDULE B
AT HOME CORPORATION
2,500,000 Shares of Common Stock
(Par Value $.01 Per Share)
1. The initial public offering price per share for the Securities,
determined as provided in said Section 2, shall be $________.
2. The purchase price per share for the Securities to be paid by the
several Underwriters shall be $________, being an amount equal to the initial
public offering price set forth above less $________ per share; provided that
the purchase price per share for any Option Securities purchased upon the
exercise of the over-allotment option described in Section 2(b) shall be reduced
by an amount per share equal to any dividends or distributions declared by the
Company and payable on the Initial Securities but not payable on the Option
Securities.
Sch C-1
<PAGE>
SCHEDULE C
List of persons and entities
subject to lock-up
[To Come]
Sch E-1
<PAGE>
Exhibit A
FORM OF OPINION OF COMPANY'S COUNSEL
TO BE DELIVERED PURSUANT TO
SECTION 5(b)
[To Come]
A-1
<PAGE>
Exhibit B
Form of Lock-Up Agreement
*, [4]
[To Come]
M-1
<PAGE>
EXHIBIT 5.01
------------
July 27, 1998
At Home Corporation
425 Broadway
Redwood City, CA 94063
Gentlemen/Ladies:
At your request, we have examined the Registration Statement on Form S-3
(the "Registration Statement") to be filed by you with the Securities and
Exchange Commission (the "Commission") on July 27, 1998 in connection with the
registration under the Securities Act of 1933, as amended, of up to an aggregate
of 2,875,000 shares of your Series A Common Stock (the "Stock"), all of which
will be sold by you.
In rendering this opinion, we have examined the following:
(1) your registration statement on Form 8-A (File Number 000-22697), as
declared effective by the Commission on July 11, 1997;
(2) the Registration Statement, together with the Exhibits filed as a part
thereof;
(3) the Prospectus prepared in connection with the Registration Statement;
(4) the minutes of meetings and actions by written consent of the
stockholders and Board of Directors that are contained in your minute
books that are in our possession;
(5) your stock records in our possession that you have provided to us
(consisting of a list of stockholders as of July 24, 1998 and a list
of option and warrant holders respecting your capital stock that were
prepared by you and dated July 24, 1998); and
(6) a Management Certificate addressed to us and dated of even date
herewith executed by the Company containing certain factual and other
representations.
We have also confirmed the continued effectiveness of the Company's
registration under the Securities Exchange Act of 1934, as amended, by telephone
call to the offices of the Commission and have confirmed your eligibility to use
Form S-3.
In our examination of documents for purposes of this opinion, we have
assumed, and express no opinion as to, the genuineness of all signatures on
original documents, the authenticity of all documents submitted to us as
originals, the conformity to originals of all documents submitted to us as
copies, the legal capacity of all natural persons executing the same, the lack
of any undisclosed terminations, modifications, waivers or amendments to any
documents reviewed by us and the due execution and delivery of all documents
where due execution and delivery are prerequisites to the effectiveness thereof.
<PAGE>
July 27, 1998
Page 2
As to matters of fact relevant to this opinion, we have relied solely upon
our examination of the documents referred to above and have assumed the current
accuracy and completeness of the information obtained from public officials and
records referred to above. We have made no independent investigation or other
attempt to verify the accuracy of any of such information or to determine the
existence or non-existence of any other factual matters; however, we are not
-------
aware of any facts that would cause us to believe that the opinion expressed
herein is not accurate.
We are admitted to practice law in the State of California, and we express
no opinion herein with respect to the application or effect of the laws of any
jurisdiction other than the existing laws of the United States of America and
the States of California and (without reference to case law or secondary
sources) the existing Delaware General Corporation Law.
Based upon the foregoing, it is our opinion that the up to 2,875,000 shares
of Stock to be issued and sold by you, when issued and sold in accordance in the
manner referred to in the Prospectus associated with the Registration Statement,
will be validly issued, fully paid and nonassessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to all references to us, if any, in the
Registration Statement, the Prospectus constituting a part thereof and any
amendments thereto.
This opinion speaks only as of its date and we assume no obligation to
update this opinion should circumstances change after the date hereof. This
opinion is intended solely for the your use as an exhibit to the Registration
Statement for the purpose of the above sale of the Stock and is not to be relied
upon for any other purpose.
Very truly yours,
FENWICK & WEST LLP
By: /s/ Laird H. Simons III
---------------------------
Laird H. Simons III
<PAGE>
EXHIBIT 23.02
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3) and related Prospectus of At Home
Corporation for the registration of 2,875,000 shares of its common stock and
to the incorporation by reference therein of our report dated January 19,
1998, except for Note 10, as to which the date is March 18, 1998, with respect
to the consolidated financial statements of At Home Corporation included in
its Annual Report (Form 10-K) for the year ended December 31, 1997, filed with
the Securities and Exchange Commission.
/s/ ERNST & YOUNG LLP
San Jose, California
July 23, 1998
